On Friday, Raymond (NS:RYMD) James maintained a Market Perform rating on Broadcom Limited (NASDAQ:AVGO). The firm acknowledged the company's fourth-quarter results and first-quarter revenue outlook, which matched expectations. This comes as the semiconductor sector faces intense competition, with key rival AMD commanding a $211.7 billion market cap and showing strong momentum with a projected 13% revenue growth for FY2024, according to InvestingPro data.
The conversation during the earnings call that caught attention was about the Artificial Intelligence Serviceable Available Market (AI SAM) potential in 2027. Broadcom's management foresees a $60-90 billion opportunity with its three hyperscale customers, which is a significant increase from the $15-20 billion projected for 2024.
The company's optimistic forecast includes revenue from GPUs, custom ASICs (XPUs), and Networking ICs. This projection is based on the assumption that each customer will develop a cluster of 1 million GPUs or XPUs on a single fabric. Broadcom is also expanding its reach by working with two additional hyperscale customers, which could further increase its serviceable market.
According to management's estimates, the SAM could grow at a compound annual growth rate (CAGR) of approximately 60% at its three primary customers. This rate is on par with the growth expectations in the overall accelerator market, as seen with competitors like AMD. If Broadcom retains its current market share of over 50% at these customers, it could result in an earnings per share (EPS) power of $9-10 by 2027.
Despite these projections, the analyst cautioned that the growth trajectory towards the 2027 SAM and market share figures is not guaranteed to be steady, and it may be premature to place full confidence in these long-term targets.
Additionally, the custom ASIC business is expected to experience a period of stagnation with a subdued growth outlook for the first half of 2025. The semiconductor sector's volatility is evident in competitors like AMD, which shows a beta of 1.64, indicating higher market sensitivity than average.
With the stock trading at 33 times the fiscal year 2025 estimated price-to-earnings (P/E) ratio, Raymond James expressed hesitation in recommending investors to pursue the stock at its current valuation. The firm indicated a preference for other companies in the sector, such as NVDA, MRVL, AMD, MU, and SemiCaps, which are also involved in the data center AI theme.
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In other recent news, Advanced Micro Devices (NASDAQ:AMD) has been in the spotlight due to various developments. BofA Securities has adjusted its rating on AMD from "Buy" to "Neutral", citing concerns about increased competition in the artificial intelligence (AI) sector and potential corrections in PC processor sales.
The firm also revised the price target for AMD's shares to $155 from the previous target of $180. The company's projected earnings per share have been lowered for the fiscal years 2025 and 2026, now 13% and 23% below the consensus, respectively.
In addition, AMD's CEO, Lisa Su, has been recognized as CEO of the Year by Time Magazine, acknowledging her transformative leadership. Furthermore, AMD has secured substantial investment from leading US semiconductor companies, including Nvidia Corp . (NASDAQ:NVDA), AMD Ventures, and Intel (NASDAQ:INTC) Capital, in Ayar Labs Inc., a company innovating in optical data transfer technology.
Northland has maintained an "Outperform" rating on AMD shares, forecasting a surge in PC demand by 2025 due to Microsoft (NASDAQ:MSFT)'s decision to end support for Windows 10. This could potentially contribute an additional $1.0 billion to $1.7 billion to AMD's revenue.
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