On Monday, JPMorgan (NYSE:JPM) adjusted its outlook on Broadcom Limited (NASDAQ:AVGO), raising the price target to $250 from the previous $210 while maintaining an Overweight rating on the stock. The stock has shown remarkable momentum, gaining over 25% in the past week alone and currently trading near its 52-week high of $228.70.
According to InvestingPro analysis, Broadcom is currently trading above its Fair Value, with 20 analysts recently revising their earnings expectations upward for the upcoming period. Broadcom's performance in the October quarter was robust, driven by a 19% quarter-over-quarter increase in its AI semiconductor segment. This growth helped balance out a dip in software revenues, which was attributed to deals that were deferred to the January quarter.
The company's guidance for the January quarter aligns with consensus estimates and surpasses market expectations. This positive outlook is supported by sustained strong demand in AI and an anticipated acceleration in software revenue.
Broadcom's AI revenues for the fiscal year 2024 reached $12.2 billion, a threefold year-over-year increase, and are projected to grow to $17-18 billion in fiscal year 2025, representing a 40% year-over-year rise. This growth aligns with the company's impressive overall revenue growth of 44% and industry-leading gross profit margin of 75.22%.
InvestingPro data reveals that Broadcom maintains a "GREAT" overall financial health score, particularly excelling in profit and price momentum metrics. For detailed analysis of Broadcom's growth trajectory, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers. This growth is underpinned by consistent capital expenditure in cloud and hyperscaler infrastructure, particularly in AI.
Broadcom's market opportunity within the AI space is expected to surge to $60-90 billion by 2027, up from $15-20 billion in 2024. This projection is based on investments in XPU roadmaps and the expansion of cluster sizes. Despite the transition from the 5nm to the 3nm AI TPU program, the company anticipates a 3-4% quarter-over-quarter growth in AI revenues for the January quarter. The 3nm TPU v6 training chip, expected to enter high volume production in the second half of the next fiscal year, could generate over $8 billion for Broadcom in fiscal year 2025.
The fundamentals of Broadcom's cyclical semiconductor businesses are stabilizing, with most sectors poised for recovery in fiscal year 2025, except for the industrial sector. The infrastructure software business is also seeing positive momentum, with successful conversions and upsells to its VCF full stack solution. Despite some revenue fluctuations due to delayed deals, the company has maintained a stable revenue growth trajectory amid macroeconomic uncertainties.
Broadcom's strong free cash flow, which increased by 10% year-over-year, led to an 11% dividend increase, despite the challenges of restructuring costs and cash taxes. InvestingPro data shows the company has maintained dividend payments for 15 consecutive years, with an impressive dividend growth rate of 15.22% in the last twelve months.
With the revised price target and the reaffirmed Overweight rating, Broadcom remains JPMorgan's top semiconductor stock pick, now commanding a market capitalization of $1.05 trillion. InvestingPro subscribers have access to over 20 additional key insights about Broadcom's financial health and market position through the platform's exclusive Pro Research Report.
In other recent news, Broadcom Limited has seen significant upward revisions in price targets from financial firms including Goldman Sachs (NYSE:GS), TD Cowen, Piper Sandler, Cantor Fitzgerald, Baird, and Bernstein SocGen Group, due to the company's robust growth in the artificial intelligence (AI) sector. These adjustments follow a recent earnings report and an optimistic outlook for the company's growth prospects, particularly in the AI semiconductor market.
Broadcom's AI semiconductor serviceable available market (SAM) forecast for fiscal year 2027 is projected to be between $60 billion and $90 billion, suggesting a sharper growth trajectory than earlier estimates.
Goldman Sachs' revised financial projections for Broadcom include a 4% increase in the non-GAAP earnings per share (EPS), excluding stock-based compensation (SBC), to $7.94 for fiscal year 2026, and a non-GAAP EPS expectation of $10.13 for fiscal year 2027. CFRA views the company's recent 11% dividend increase favorably and anticipates a focus on reducing debt, with a $2.5 billion reduction noted in the October quarter. They foresee over $30 billion in free cash flow for Broadcom in fiscal year 2025.
Broadcom's AI revenue experienced a 220% annual increase, driving several firms to raise their price targets. The growth is largely attributed to Broadcom's custom silicon business, anticipated to expand three to four times in the next three years. The company's financial health is rated as great, supported by strong profitability and momentum metrics.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.