Broadcom (NASDAQ:AVGO) shares hit new highs in Friday’s session with the semiconductor giant joining the exclusive $1 trillion-cap group.
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The stock jumped by 20% after the company dialed in a strong fiscal fourth-quarter report. Revenue climbed by an impressive 51% compared to the year-ago period to reach a record $14.06 billion whilst meeting Street expectations. At the bottom line, the company surpassed expectations by $0.03, delivering adj. EPS of $1.42.
For the full year, revenue reached a record $51.6 billion. That included $12.2 billion in AI revenue, amounting to a massive 220% year-over-year increase, boosted by the company’s leading AI XPUs and Ethernet networking portfolio. For FQ1, AI product sales are anticipated to climb by 65%.
More than anything, however, Wall Street’s enthusiastic reaction can be put down to what is about to take place over the next few years. By 2027, Broadcom expects to rake in between $60 to $90 billion in revenues from custom AI chips. It should be noted, though, that this is only from the company’s three AI application-specific integrated circuit clients, which include Google and Meta Platforms. In fact, this figure could increase further if the company secures contracts with the other two hyperscalers, Microsoft and Amazon.
Joining those lining up to voice their approval, Deutsche Bank’s Ross Seymore, an analyst ranked in the top 1% of Wall Street stock experts, is impressed with the showing.
“Unlike their previous report, not only did AVGO deliver a solid report/guide but they more importantly provided meaningful upside to their LT expectations for AI-related revenues, outlining an FY27 SAM of ~$60-90B for solely their 3 current hyperscale customers, an impressive figure even allowing for significant uncertainty on the exact market share AVGO can attain/address, as well as the component mix (XPU, GPU, Networking, HBM etc.),” Seymore opined.
Alongside this SAM (serviceable addressable market) outlook, the company announced the addition of two new hyperscale customers to their XPU business, which Seymore says signals “important diversification, growth potential and endorsement of hyperscalers’ rising appetite for custom processing solutions.” On the software front, despite a minor miss in the quarter, steady growth is anticipated for F1Q25 and beyond, supported by an “impressive” 72% operating margin.
“Overall,” the 5-star analyst summed up, “the combination of AVGO’s better-than-feared F1Q25 guide, AI confidence (SAM, customer expansion) and strong VMW should maintain the strong momentum for the company’s fundamentals and share price.”
Accordingly, Seymore rates AVGO shares a Buy, while raising his price target from $190 to $240. The new figure makes room for gains of 10% in the months ahead. (To watch Seymore’s track record, click here)
Plenty of other analysts are thinking along the same lines; the stock boasts a Strong Buy consensus rating, based on a mix of 21 Buys vs. 3 Holds. However, considering the big gains (up 95% year-to-date), the $222.45 average target suggests the shares are fully valued right now. It will be interesting to see whether the analysts upgrade their price targets or downgrade their ratings over the coming months. (See AVGO stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
