Broadcom Likely Upside, Supported by AI Pipeline, Market Recovery, VMWare Synergy: Analyst

JP Morgan analyst Harlan Sur maintained an Overweight rating Broadcom Inc (NASDAQ:AVGO) with a $210 price target.

Broadcom will report fiscal fourth-quarter 2024 results on Thursday. Sur observed a strong demand profile for AI products, continued cyclical recovery in the diversified semiconductor end markets (ex-AI) and unlocked VMWare’s revenue synergies.

As a result, the analyst expects revenue, earnings and free cash flow to beat JP Morgan and consensus expectations (revenue comes in at $14.2 billion-$14.3 billion versus consensus at $14.1 billion). He forecast adjusted earnings per share of $1.40.

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On a higher base for the fourth quarter, Sur posted fiscal first quarter 2025 revenue guidance of $14.2 billion – $14.4 billion (or flat sequential growth below the $14.64 billion consensus) and closer to the below -street estimates of $14.4 billion from the analyst. He forecast adjusted earnings per share of $1.46.

Sur noted that the lower revenue guidance is due to more seasonal trends in its core semiconductor business, combined with a product transition at its large AI ASIC customer. Googlingonly partially offset by continued strong software innovations at VMware and strong AI networks.

Sur noted that the AI ​​manufacturing transition will involve a product transfer from the TPU inference chip at 5nm to the TPU v6 training chip at 3nm, which should cause a temporary AI ASIC revenue pause in the first quarter.

However, Sur expects sequential growth to resume in the second quarter as the TPU v6 3nm training chip enters major volume growth. This should be a strong tailwind for the remainder of fiscal year 2025.

Overall, for fiscal 2025, Sur expects full-year revenue and earnings per share growth, continued strong demand for its AI products and a more synchronized end-market recovery in its diversified semiconductor end markets (ex -AI) as the year progresses.

Sur expects Broadcom to generate approximately $12 billion to $12.5 billion in AI revenue in fiscal 2024 (three times more than a year earlier) with adjusted earnings per share of $4.84, and $17 billion to $17 billion in fiscal 2025 Will generate $18 billion in AI revenue (40%+ growth) and adjusted EPS of $6.34 based on continued strong growth of Google’s TPU AI processor and full production increase Metaplatform Inc‘s MTIA AI 3nm processor combined with continued strong demand for its AI networking products and the start of the Tomahawk 6 ramp.

More importantly, Sur noted that the team continues to meaningfully expand its AI ASIC customer acquisition and engagement pipeline and recently expanded its AI customer engagement to six customers from five customers.

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