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JPMorgan sees upside in Broadcom stock as AI demand surges

EditorEmilio Ghigini
Published 06/09/2024, 11:10
AVGO
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On Friday, JPMorgan (NYSE:JPM) increased its price target for Broadcom Limited (NASDAQ:AVGO) to $210 from the previous $200, while maintaining an Overweight rating on the stock.


The firm's decision comes after Broadcom reported improved results for the July quarter, driven by growth in its artificial intelligence (AI) semiconductor segment, which saw a 3-4% quarter-over-quarter increase.


Additionally, the beginning of a cyclical recovery in server/storage and traditional networking segments, coupled with a robust VMware (NYSE:VMW) business, contributed to the positive outcome, despite weaker trends in broadband and industrial.


The growth dynamics are anticipated to further accelerate in the October quarter, with AI semiconductors expected to rise by 10% quarter-over-quarter and non-AI semiconductors by the same margin. VMware's business is projected to grow over 25% quarter-over-quarter. Broadcom has resumed providing quarterly guidance, indicating an October quarter revenue forecast in line with consensus estimates. The guidance suggests an increased revenue outlook for fiscal year 2024 to $51.5 billion, up from the previous forecast of $51 billion.


Broadcom's AI revenue, which includes ASICs, networking, and PCIe, grew in the July quarter to $3.2 billion and is expected to see further acceleration in the October quarter. The company has increased its fiscal year 2024 AI revenue outlook to $12 billion, a threefold increase year-over-year, with potential for even higher growth rates in the coming years.


The firm has noted that bookings for the cyclical (non-AI) semiconductor businesses have increased by over 20% year-over-year for two consecutive quarters. With 6-12 month order lead times, revenues are expected to start reflecting positive growth in the next six months.


In the infrastructure software segment, Broadcom is making significant strides with VMware, achieving high software renewal rates and conversion/upsell to its VCF full stack solution. Revenue in this segment grew 41% quarter-over-quarter and is on track to surpass the quarterly target of $4 billion, with potential to reach $4.5-$5 billion per quarter by 2025.


JPMorgan has updated its forward estimates and set a December 2025 price target of $210, reiterating the Overweight rating. Broadcom remains JPMorgan's top pick in the semiconductor sector, with expected stable revenue growth even amidst macroeconomic volatility, attributed to the company's diverse portfolio and product cycles.


In other recent news, Broadcom Inc. has reported robust financial performance, particularly in its artificial intelligence (AI) segment. The company's third-quarter revenue surpassed expectations at $13.07 billion, with a significant increase in its fiscal 2024 forecast for AI revenue to $12 billion. Despite a net loss of $1.88 billion for the quarter, largely due to a one-time non-cash tax provision, Broadcom's revenue growth of 47% to $13.1 billion and positive outlook for the fourth quarter indicate a strong financial position.


Broadcom's advancements in software, particularly its progress with VMware, were noted by Piper Sandler, which maintains an Overweight rating on the company's stock. Similarly, a major financial firm maintained its Buy rating on Broadcom, attributing the company's strong performance to its AI business and contributions from VMware.


Broadcom also introduced VMware Tanzu Platform 10 and Tanzu AI Solutions, aimed at simplifying cloud-native application development. The company has launched a new initiative called Catalyst to enhance its Accelerate Program by engaging elite Enterprise Security Group partners. These recent developments underscore Broadcom's strategic focus and growth trajectory in the technology sector.


InvestingPro Insights


As Broadcom Limited (NASDAQ:AVGO) continues to show promising growth, particularly in its AI semiconductor segment, it's important to consider the company's financial health and market performance. According to InvestingPro data, Broadcom boasts a robust market capitalization of $711.36 billion, illustrating the company's substantial presence in the market. The revenue growth over the last twelve months, as of Q3 2024, stands at an impressive 32.04%, signaling strong sales performance. Moreover, the company's gross profit margin during the same period is a healthy 74.71%, indicating efficient cost management relative to its revenue.


InvestingPro Tips highlight that Broadcom has not only raised its dividend for 14 consecutive years but also maintained these payments for 15 consecutive years. This consistency in rewarding shareholders is a testament to the company's financial stability and commitment to returning value to its investors. Additionally, analysts anticipate sales growth in the current year, which aligns with the positive outlook presented by JPMorgan and the company's own guidance.


For investors seeking more in-depth analysis, there are over 10 additional InvestingPro Tips available, offering insights into Broadcom's valuation multiples, profitability, and historical returns. These tips can be accessed through InvestingPro's dedicated page for Broadcom at https://www.investing.com/pro/AVGO, providing a comprehensive overview of the company's financial standing and market potential.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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