On Wednesday, Susquehanna maintained a positive stance on Broadcom Limited (NASDAQ:AVGO), increasing the stock's price target to $1,550 from $1,400. The firm anticipates that investor attention will be drawn toward the company's AI networking and TPU (Tensor Processing Unit) advancements, as well as the ongoing integration of VMWare, which is expected to yield pricing and synergy benefits. Despite facing headwinds in core semiconductor areas, Broadcom is preparing to report its earnings on Thursday, March 7, 2024.
Broadcom had previously decided to offer full-year fiscal 2024 guidance rather than its usual next-quarter forecast, in light of its VMWare integration. For the first and second quarters of the fiscal year, results are expected to be slightly better than anticipated. However, it remains uncertain whether the company will adjust its full-year guidance, which currently stands at $50 billion, although there is a possibility of an increase to $52 billion if Networking and VMWare perform better than expected.
The firm's growth in AI is projected to counterbalance weaker broad-based semiconductor sales, with management aiming for approximately $30 billion in semiconductor revenue for FY24. AI is anticipated to be the main growth driver for networking, backed by the expectation of over 30% year-over-year growth in AI for FY24.
This growth is supported by demand for Google (NASDAQ:GOOGL) TPU, data center switches, routers, and network interface cards (NICs). Nonetheless, elevated inventory levels at companies like Arista, Cisco (NASDAQ:CSCO), and Juniper could pose a risk, even though Broadcom asserts that it has been meeting end demand.
In the wireless sector, Broadcom's results and guidance are expected to align with previous projections. The company's CEO indicated that higher content might be offset by unit numbers, resulting in flat year-over-year performance in FY24. Storage Connectivity revenue is forecasted to decline by mid-to-high-teens percentage year-over-year in FY24; however, there are indications of a potential recovery in the storage market, as suggested by companies such as STX, WDC, and MRVL.
Broadcom is in the midst of transitioning VMWare's customer base from over 60% perpetual licensing to primarily subscriptions, aiming to optimize revenue and margins. Additionally, the company has outlined plans to reduce VMware (NYSE:VMW)'s headcount costs by approximately $1 billion, with updates on these cost-cutting efforts expected.
In summary, Susquehanna's positive outlook on Broadcom is reinforced by the company's strategic integration of VMWare and the broader prospects for AI networking and Ethernet technology. The firm is reiterating its positive rating and has raised the price target to $1,550, which is based on approximately 31.5 times the estimated calendar year 2024 enterprise value to net operating profit after tax (EV/NOPAT).
InvestingPro Insights
Broadcom Limited (NASDAQ:AVGO) continues to garner analyst confidence, as reflected in Susquehanna's updated price target. In the backdrop of this optimism, InvestingPro data and tips provide a deeper financial context for investors considering Broadcom's stock. As of the last twelve months ending in Q4 2023, Broadcom boasts a substantial market capitalization of $600.7 billion and an impressive operating income margin of 45.94%, highlighting its profitability in a competitive industry.
InvestingPro Tips indicate that Broadcom has raised its dividend for 14 consecutive years, signaling a strong commitment to returning value to shareholders. Furthermore, analysts anticipate sales growth in the current year, which aligns with Susquehanna's positive stance on the company's potential, particularly in AI networking and the integration of VMWare. For investors seeking more in-depth analysis, InvestingPro offers additional tips that delve into Broadcom's financial health and market position, including insights into its earnings multiples and debt management. There are 20 more InvestingPro Tips available, which can be accessed for a deeper dive into the company's performance and outlook at https://www.investing.com/pro/AVGO.
The real-time data also reveals a robust P/E ratio of 38.24, which, while indicating a high valuation, may be justified by the company's growth prospects and dominant position in the semiconductor industry. With a revenue growth of 7.88% over the last twelve months, Broadcom shows a healthy expansion trajectory. Investors can also take note of the company's solid dividend yield of 1.62%, further enhancing its attractiveness as an income-generating investment.
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