Citi on Broadcom's potential AI sanctions hit

Investing.com -- Citi analysts assessed the impact of potential new U.S. government AI chip shipment restrictions on Broadcom (NASDAQ:AVGO ) Inc., emphasizing that while the sanctions could pose a risk, the company's overall AI-driven growth is likely to mitigate these challenges.

According to reports from various media outlets, including Bloomberg, the Biden Administration is considering further restrictions on AI chip exports to China. 

Citi notes that this could affect Broadcom’s business, particularly its relationship with Bytedance, which is projected to be the company's third-largest ASIC customer in fiscal year 2025 (F25). 

The investment bank estimates that Bytedance could account for $2-$3 billion in sales, representing approximately 3%-5% of Broadcom's F25 sales.

Despite the potential loss of revenue from Bytedance, Citi remains optimistic about Broadcom's broader AI business prospects. 

The analysts note, “even if AVGO cannot ship to Bytedance, the upside from the rest of AI will dwarf any risk.” 

Broadcom's significant customers, such as Google (NASDAQ:GOOGL ) and Meta (NASDAQ:META ), are expected to generate around $10 billion in ASIC sales for F25, which combined accounts for 16% of the company’s total sales.

Citi also highlights the growing demand from new customers like OpenAI and Apple (NASDAQ:AAPL ), which should further bolster Broadcom's AI business. 

The firm anticipates substantial growth in Broadcom’s AI segment, with AI sales from current major customers potentially tripling by F27 as the company’s serviceable addressable market (SAM) expands from $15-$20 billion in F24 to $60-$90 billion by F27.

Given the anticipated strength in Broadcom's AI business, Citi reiterates its Buy rating on the stock, with a $220 price target.

 

Source: Investing.com