Analysts revisit Broadcom stock price targets after Q3 earnings

Broadcom shares slumped in Friday trading after the networking-chip maker posted a mixed set of quarterly earnings and a muted near-term revenue forecast, which added to concerns that the AI-investment theme may o.k. be slowing into the final word months of the year.

Broadcom (AVGO) , one amongst the market's star performers in 2024, has seen a huge surge in demand for its really expert networking chips, helping the group add more than $200 billion in value this year.

The chips play a key role contained in the improvement of AI systems, where large data models require a series of networks, connected by nodes, that determine the speed at which information collected in a single network is passed along to the subsequent.

The group also makes what are on a regular basis often in most cases is known as ASIC chips, which lend a hand hyperscalers — the massive providers of cloud services and infrastructure — move large amounts of information through integrated circuits and indirectly accelerate the speed and reliability with which they process information.

Broadcom's role contained in the AI investment theme, besides to the muted earnings and outlook reported last month by market-leading chipmaker Nvidia, put its fiscal 1/3 quarter earnings in sharp center of attention as investors looked to justify the broader sector's lofty valuations.

Broadcom became able to post a modestly better-than-expected revenue tally for the three months ended in July of $13.1 billion, thanks in part to a surge in demand for its ASIC and AI-focused chips. But it did now not impress investors with its near-term outlook.

AI revenue became no doubt flat from the previous quarter at $Three.2 billion but is more likely to grow 10% contained in the present quarter thanks in part to continued demand from hyperscalers such as Meta Platforms (META) , Google parent Alphabet (GOOGL) and China-based TikTok owner ByteDance.

Improving AI growth forecasts

Broadcom sees current-quarter sales contained in the region of $14 billion, just shy of forecasts, with a full-year tally of around $fifty one.5 billion, just ahead of its prior forecast of $fifty a thousand million.

Revenue from VMware, the cloud software group Broadcom agreed to buy for $sixty a thousand million in 2022 and closed on last year, is expected to reach a quarterly run rate of $four billion.

"While the corporate’s report became solid, without any subject material soft points, its AI business lacked the clear upside momentum [Wall Street] became attempting to search out," said Benchmark analyst Cody Acree, who reiterated his buy rating and $210 price target following last night's earnings report.

"Still, the corporate’s results showed steady progress in its AI business (and) overall, we thought Broadcom delivered a solid report and outlook, with many points of fundamental strength for investors to be encouraged by," he added.

Morgan Stanley analyst Joseph Moore said Broadcom's AI growth, while now now not linear, remains strong, adding that the group's current forecast suggests flat growth for its AI products division.

Still, the analyst added $four to his Broadcom price target, taking it to $A hundred and eighty per share, and affirmed an overweight rating after the earnings report.

"We assumed that there became conservatism in that, and had a $12 billion estimate, but we highlighted in our preview that the corporate had characterized the ASIC business as lumpy from quarter to quarter," said Moore,

"That lumpiness did play out, because the corporate saw AI processors flattish quarter over quarter — with networking for AI up slightly," he added. "But importantly, growth remains to be with regards to some of times this year, and sequential growth resumes in October."

Solid hyperscaler demand at Broadcom

Cantor Fitzgerald analyst CJ Muse, who reiterated his $200 price target and overweight rating on Broadcom, said the AI revenue story remains compelling and the stock remains "one amongst the simplest quality AI plays contained in the market."

"AI revenues continue to grow strongly and with customer breadth making improvements to in custom chips (from Google to now Meta Platforms and Bytedance accelerating) coupled with ethernet networking growth tied very tightly with forward [graphics processing unit] sales, fiscal year 2025 ought to be every other strong year for AI," he added.

Goldman Sachs analyst Toshiya Hari became also bullish on the group's longer-term outlook, calling the 1/3-quarter numbers and current-quarter forecast a "hiccup."

Hari, who lifted his price target on Broadcom by $5 to $100 ninety a share, citied the group's "consistent" cash-drift generation and its "robust" competitive position contained in the high-speed networking space.

JP Morgan analyst Harlan Sur also boosted his Broadcom price target, taking it $10 higher to $210 while keeping an overweight rating in place.

More AI Stocks:

• Analyst revisits Microsoft stock price target after AI reporting change
• Analyst resets Nvidia stock price target before earnings
• Analysts revise Palo Alto Networks stock price targets after earnings

"AI permeates enterprises all across and digital natives, have in mind to upgrade servers," Broadcom Chief Executive Hock Tan told analysts on a conference call late Thursday. "That you'd have the ability to upgrade storage. That you'd have the ability to upgrade networking, connectivity across the entire ecosystem."

"If the remaining else, we may o.k. be headed for upcycle, timing of precisely after we're now now undecided, but an upcycle that would even meet and even surpass what our previous up cycles will be, simply since the amount of bandwidth you need, the amount to focus on, store, focus on all these workloads that come out of AI would just the should refresh and upgrade hardware," Tan added.

Broadcom shares were marked 7.9% lower in premarket trading to indicate a spot bell price of $100 and forty.Seventy five each, a move that would trim the stock's six-month gain to around four.Three%.

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