Bank of America (BofA) raised their price target on Broadcom (NASDAQ:AVGO) stock, after the semiconductor company reported a 4% beat on second-quarter sales, raised its fiscal year (FY) 2024 sales outlook by $1 billion to $51 billion, and announced a 10:1 stock split.
BofA reiterated its Buy rating on the stock and continues to view it as a top AI pick, alongside Nvidia (NASDAQ:NVDA)
The bank’s analysts believe AVGO is uniquely positioned to grow in several key areas, including custom AI chips, Ethernet networking, leveraged to the exponentially growing AI clusters, and VMware upsell opportunities.
Analysts model fiscal 2024 sales at $51.5 billion, exceeding guidance due to continued AI growth. They have raised fiscal 2025 and 2026 sales growth expectations to 16% and 10% year-over-year, respectively, up from previous estimates of 14% and 8%.
“Overall we see EPS at the $70-$75 pf-EPS level by CY26E, or even run-rate basis exiting CY25E,” analysts added.
In addition to adjusted estimates, they raised the target price on AVGO from $1,680 to $2,000.
Analysts see multiple upside drivers in FY 2025 specifically, primarily from AI semis, non-AI semis, and VMWare. Moreover, AVGO’s substantial debt paydown could allow for more M&A next year, and double-digit free cash flow growth in FY24 could enable another 10% dividend increase by year-end.