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FollowingCore Points
Company raises its multi-year AI revenue forecast
Wall Street views are clearly divided
Access to 3 free stock e-books
Broadcom's share price fell after its earnings report, with market response lukewarm
Although Broadcom (Broadcom, ticker: AVGO) reported one of its strongest quarterly results in history on Thursday, it failed to win the market's favor. AVGO shares fell nearly 3%, with a cumulative decline of about 15% over the past month, and are currently trading at about $358 per share. That price is more than 25% lower than its all-time high set in June.
The third quarter's results were outstanding, with AI chip revenue surging.
Total revenue in the third quarter reached a record high of US$29.59 billion, a year-on-year increase of 85%, exceeding Wall Street's forecast of US$29.4 billion. Adjusted earnings per share (EPS) were $3.32, above the consensus market forecast of $3.24. Free cash flow surged 95% to $13.7 billion.
The most prominent sector was sales of AI semiconductors, with revenue soaring to US$16.7 billion, an increase of 221%. Customized XPU products expanded 3.5 times year-on-year and now account for 73% of total AI-related revenue.
Fourth-quarter guidance was slightly below expectations
Looking forward to the fourth quarter, Broadcom provided revenue guidance of approximately US$34.8 billion, a year-on-year increase of 93%. The question is? Estimates from several Wall Street analysts range from $35 billion to $35.4 billion. This small gap is enough to shake investor confidence.
Company improves multi-year AI revenue forecast
Broadcom has raised its AI semiconductor revenue forecast for fiscal year 2027 to approximately $115 billion, following a previous forecast of more than $100 billion. The company also announced a forecast target of $230 billion for fiscal year 2028, implying that it will double again compared to 2027.
Major customers such as Anthropic and OpenAI are the main drivers of this optimistic outlook. Anthropic reached an agreement with Broadcom in April this year to purchase Dogiwatt-scale next-generation TPU infrastructure starting in 2027. OpenAI is working with Broadcom to develop a 10-gigawatt custom AI processing chip, extending the partnership until 2029.
BMO Capital raised its price target to $575 from $455, highlighting Broadcom's six major AI customers and noting that Anthropic is the most aggressive in expanding its computing infrastructure. Macquarie has upgraded AVGO to "Outperform" with a target price of $490, estimating that Anthropic may purchase products worth more than $40 billion from Broadcom in fiscal 2028.
Wall Street views are clearly divided
The bullish narrative has not received widespread support.
DA Davidson lowered its target price from $400 to $350, maintaining a "neutral" stance and emphasizing concerns about guidance data. RBC Capital maintains its $400 price target and gives it a "Sector Perform" rating, noting that component availability and infrastructure readiness could be potential headwinds.
RBC also observed that Broadcom's valuation is approximately 18.5 times expected 2027 earnings, and if equity incentive fees are deducted, it will be a premium of more than 30% to Nvidia.
Evercore ISI fine-tuned its target price to $578 (originally $582), retaining its "Outperform" rating. TD Cowen lowered its target price to $475 from $500, but maintained its "buy" recommendation. Morgan Stanley raised its price target to $505 from $502. Cantor Fitzgerald significantly raised its target price to $600 from $525.
AVGO's current valuation is about 34 times forward earnings, slightly lower than its semiconductor sector peers, but significantly higher than the 21 times multiple of the S & P 500 index.
Truist Securities lowered its price target to US$520, pointing to a small gap in software performance and a slightly conservative AI revenue forecast relative to consensus. KeyBanc maintains its "Overweight" recommendation and a price target of $575, emphasizing an increase in AI revenue guidance for fiscal year 2027.
