On Friday, Deutsche Bank (ETR:DBKGn) exhibited confidence in Broadcom Limited (NASDAQ:AVGO), raising its price target on the company's shares to $240 from the previous $190. The firm has maintained a Buy rating on the stock, highlighting Broadcom's solid performance and growth potential in artificial intelligence (AI).
The stock, currently trading near its 52-week high with a market capitalization of $844 billion, has delivered an impressive 68% return over the past year. According to InvestingPro analysis, the stock appears to be trading above its Fair Value, suggesting investors should carefully consider entry points.
The bank's analysis pointed out that Broadcom not only delivered a robust report and guidance that aligned with or exceeded expectations but also provided an optimistic view on their long-term AI-related revenue prospects. This optimism is supported by the company's strong financial performance, with InvestingPro data showing a remarkable 32% revenue growth and an impressive 75% gross profit margin.
Broadcom estimates a future serviceable available market (SAM) of approximately $60-90 billion by fiscal year 2027 for its AI products, which cater to three current hyperscale customers.
Moreover, Broadcom management announced the acquisition of two additional hyperscale customers for their XPU business, signifying growth opportunities and validation of the increasing demand for custom processing solutions among hyperscalers.
Despite a slight miss in the fourth fiscal quarter, Broadcom's software division is anticipated to continue its steady growth trajectory, with expectations of a strong operating margin of 72% going forward. The company's guidance for the first fiscal quarter of 2025 and the confidence in its AI business, combined with effective execution of strategies, are expected to sustain the positive momentum in Broadcom's fundamentals and share price.
Deutsche Bank supports its price target increase by applying a price-to-earnings (P/E) ratio of around 30 times the calendar year 2026 earnings, which is consistent with the multiples for other leading AI industry peers. This valuation reflects the bank's outlook on Broadcom's financial performance and market position.
Currently trading at a P/E ratio of 160x, the stock commands a premium valuation. For deeper insights into Broadcom's valuation metrics and access to the comprehensive Pro Research Report covering 1,400+ stocks, visit InvestingPro.
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