Proactive Investors - Broadcom (NASDAQ:AVGO) Inc’s artificial intelligence (AI) related sales are expected to continue accelerating in what is the early stages of a multi-$100 billion AI data center opportunity, according to Bank of America (NYSE:BAC) analysts.
In an update to clients, they noted that Broadcom’s AI related sales crossed $6 billion a year run rate in the fourth quarter, which offset cyclical headwinds in the enterprise server/storage areas.
As well, the analysts wrote that the company’s recently acquired VMWare business is expected to grow at least 10% plus year over year over the next three years, “representing a unique, high growth asset in Broadcom's more mature infra software portfolio”.
All of which points to strong free cash flow (FCF) generation, with a 45%-50% plus standard FCF margin that is more than enough to support debt payments, buybacks, and dividend increases, they added.
Analysts at Bank of America, however, see risks to their outlook in the form of non-AI semiconductor weakness, elevated VMWare synergy expectations, and the fact that Broadcom has not provided quarterly guidance, which could create some near-term pressure on the stock.
They reiterated their ‘Buy’ rating on Broadcom stock while maintaining a $1200 per share price objective.
Shares of Broadcom slipped 1.2% to $911.56 in late-morning trading on Friday but have gained 65% year to date.