On Monday, Bernstein SocGen Group has increased the price target for Broadcom Limited (NASDAQ: NASDAQ:AVGO) to $250 from the previous $195, while maintaining an Outperform rating. The firm's decision follows Broadcom's fiscal fourth-quarter 2024 earnings, which showed revenues of $14.1 billion and earnings per share (EPS) of $1.42. These figures were in line with the consensus for revenue and slightly above the EPS estimate of $1.39.
Broadcom's semiconductor revenues exceeded expectations, coming in at $8.2 billion against the anticipated $8.0 billion, driven by stronger artificial intelligence (AI) revenue. However, the software segment underperformed, reporting $5.8 billion in revenue compared to the expected $6.0 billion, due to some deals being deferred into the first quarter of fiscal year 2025.
For the first quarter of fiscal year 2025, Broadcom anticipates revenues of $14.6 billion and an EBITDA margin of approximately 66%, with an implied EPS of $1.51. These projections are solid compared to the consensus estimates of $14.6 billion in revenue, $1.47 EPS, and a 63.5% EBITDA margin. Despite concerns that investors expected a shortfall, the overall results likely surpassed the muted expectations.
The report highlighted that while there were concerns leading up to the earnings release, such as a sequential decline in wireless in the first quarter and a potential miss on overall semiconductor revenues, management's strategies mitigated these issues.
Notably, the delay in software revenue helped maintain overall revenue guidance, and AI networking is bolstering AI revenues in the short term.
Additionally, there is anticipation for a significant ramp-up in XPU ASICs in the second half of 2025, thanks to new 3nm products that could see unit growth and presumably higher average selling prices (ASPs).
Looking ahead, the company painted an optimistic three-year outlook, suggesting a potential AI revenue opportunity ranging from $60 billion to $90 billion from current customers by 2027. This forecast indicates a substantial increase compared to current AI expectations for Broadcom, with further growth potential from two new customers currently in discussions.
In response to these developments, Bernstein SocGen Group has updated its model and raised estimates for Broadcom, increasing the multiple from 30x to 33x based on the stronger AI narrative.
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