Broadcom shares soar on upbeat guidance, strong AI demand forecast

Broadcom on Thursday delivered upbeat revenue guidance for the current quarter and forecasted booming demand for its custom AI chips in the next few years, sending its shares soaring in extended trading. 

Broadcom Inc (NASDAQ:AVGO ) shares surged more than 14% in premarket trading Friday. 

For three months ended Nov. 3, the chipmaker announced earnings per share (EPS) of $1.42 on revenue of $14.05 billion. Analysts polled by Investing.com anticipated EPS of $1.39 on revenue of $14.07 billion.

Semiconductor solutions, its core business, jumped 12% to $8.23B, while infrastructure software rose 196% to $5.82B.

For 2024, semiconductor revenue was a "record $30.1 billion driven by AI revenue of $12.2 billion," the company said. "AI revenue which grew 220 percent year-on-year was driven by our leading AI XPUs and Ethernet networking portfolio," it added.

Looking ahead, the chipmaker said it expects Q1 revenue of $14.6B, above consensus of $14.55B.

But the key takeaway from the earnings call, according to Jefferies analysts, was the management's growing confidence that the Serviceable Addressable Market (SAM) for their three AI ASIC customers is projected to reach $60-90 billion by fiscal year 2027 (January), based on customer roadmaps and plans.

"This would be if all 3 shift to ASICs vs GPUs for training clusters, which is not a guarantee, but it does highlight the size of the ASIC opportunity. The SAM would expand further if they win the 2 additional hyperscale customers," analysts note.

"Overall, we got a little too cute on the near-term positioning, but expect investors to come back to the name, given the better near-term clarity on AI revenue and the substantial long-term potential of 1M xPU clusters," they added.

Jefferies lifted the price target on AVGO from $205 to $225. 

Separately, Cantor Fitzgerald analysts lifted their target price to $250 from $225, and reiterated Broadcom as their Top Pick.

"It is crystal clear to us that Broadcom is a clear beneficiary of AI with a strong technology roadmap ahead that should continue to deliver strong earnings growth," the firm wrote. 

Yasin Ebrahim contributed to this report. 

Source: Investing.com