When buyers saw how well Broadcom Inc. would do in the coming years, their stock had its best day ever on Friday.
Broadcom AVGO +24.43% stock had to go up more than 15.83% to make it the biggest percentage gain in a single day on record. They easily beat that goal, going up 24.43%, and that was after the chip and software company released a mixed report.
As the print went on, there were a lot of nerves, and many of the things that were brought up as worrying during the setup did happen, Bernstein’s Stacy Rasgon wrote in a note to customers. For instance, he said that the company’s wireless business is likely to drop year-over-year in the current quarter and that sales of application-specific integrated circuits might pick up in the second half of the new fiscal year.
But Broadcom’s leaders “went out of their way to give investors a reason to dream,” Rasgon wrote. They painted a picture of a three-year (2027) future with a $60B to $90B AI revenue opportunity from current customers, which was likely a big surprise compared to what people thought the company would make from AI. There was also room for more because two new potential customers were already involved, even if they weren’t yet ramping up.
“Overall, the AI story seems to be really coming into its own. Maybe Hock should go shopping for a leather jacket…” the author added, referring to Jensen Huang, CEO of Nvidia. Rasgon raised his price goal for Broadcom shares from $195 to $250, but kept the “outperform” rating the same.
Joshua Buchalter of TD Cowen agreed, saying, “AI commentary is the story for this one.”
He said the company’s estimate of a $60 billion to $90 billion possible usable addressable market for fiscal year 2027 “is hard to prove or disprove, but is huge.”
Buchalter was also interested in Broadcom’s statement that the results will vary depending on when AI is used.
“This trend is likely to get worse in fiscal 2025, when Broadcom’s biggest custom silicon program for tensor processing units switches from v5 to v6 on 3nm,” he wrote. “Management confirmed this would happen in the second half of the fiscal year.” “Because the company now plans to report semiconductor revenue in “AI” and “non-AI” buckets, we expect this to be a touchy subject as F2025 goes on.”
He now thinks the stock is a buy and wants it to go up to $240, up from $210 before.
Ben Reitzes, an expert at Melius Research, wasn’t as worried about the timing issues. He wrote, “The master stroke here is getting investors to focus on 2027 [earnings power], which could be $9+ a share.” “Why should you care about the small amount of near-term noise about Apple, TPU shipment dates, and VMware customer chatter if it doesn’t matter?”
He thought Broadcom’s comments about the growth prospects were mostly positive. In a report, Reitzes said, “We think that all AI semis and networking benefit from Broadcom’s comments because they show that big companies will keep spending money on AI.” He thinks the stock is a good buy and sets a price goal of $255.
