Bernstein maintains Broadcom stock Outperform with $250 target

On Friday, Bernstein analysts maintained their Outperform rating on Broadcom Limited (NASDAQ:AVGO), with a steady price target of $250.00. The semiconductor giant, now commanding a market capitalization of $844 billion, saw its first fiscal quarter of 2025 earnings outperform expectations, with revenue and earnings per share (EPS) surpassing Wall Street’s predictions. The company reported revenues of $14.9 billion and EPS of $1.60, compared to the Street’s forecast of $14.6 billion and $1.50, respectively. According to InvestingPro, Broadcom has demonstrated impressive revenue growth of 40.3% over the last twelve months. This success was attributed to gains in both semiconductor and software segments, with semiconductor revenues reaching $8.21 billion, slightly above the expected $8.15 billion, and software revenues hitting $6.7 billion, surpassing the anticipated $6.5 billion. InvestingPro analysis reveals the company maintains an impressive gross profit margin of 76.26%, demonstrating strong operational efficiency. InvestingPro subscribers have access to 15+ additional key insights about Broadcom’s performance and valuation metrics.

Broadcom’s AI semiconductor revenues were notably strong, coming in at approximately $4.1 billion—around $300 million ahead of guidance—due to robust networking demand. Despite a slower recovery in core networking and storage, the AI semiconductor performance more than compensated for the shortfall. The company’s gross margins stood impressively at 79.1%, well above expectations, while operating expenses were lower than anticipated.

Looking ahead to the second fiscal quarter of 2025, Broadcom has provided guidance that shines brightly compared to the general outlook for AI stocks. The company anticipates revenues of $14.9 billion and an EBITDA margin of 66%, with an implied EPS of around $1.56. With an overall Financial Health Score of "GOOD" from InvestingPro, and currently trading at elevated multiples across various metrics, investors seeking detailed valuation analysis can access the comprehensive Pro Research Report available for Broadcom, one of 1,400+ stocks covered in depth on the platform. This forecast is optimistic compared to Wall Street’s expectations of $14.6 billion in revenue and $1.51 EPS. Semiconductor revenues are projected to be $8.4 billion, with AI sales increasing by another approximately $300 million to about $4.4 billion. Gross margins are expected to be around 78.9%, a slight decrease from the previous quarter but still above consensus, and operating expenses are set to increase slightly as Broadcom invests in research and development for next-generation AI accelerators and networking.

Software (ETR:SOWGn) revenue is anticipated to decline modestly quarter-over-quarter to roughly $6.5 billion, aligning with consensus estimates, as the company works through deal pushouts captured in the previous quarter. Despite concerns in the AI sector, management’s positive outlook for the future is reinforced by the addition of two new customers to Broadcom’s list of current engagements, bringing the total to seven potential ASIC customers.

Bernstein analysts have adjusted their estimates accordingly while reiterating the $250 price target and Outperform rating. They highlight Broadcom’s solid execution and the potential for AI strength to continue ramping up in the second half of the year as the company introduces new 3nm XPUs into production.

In other recent news, Broadcom Limited reported strong financial results for the first quarter of fiscal year 2025, surpassing Wall Street expectations with a 25% year-over-year revenue increase, reaching $14.92 billion. This growth was driven by a significant 77% increase in AI revenue, totaling $4.1 billion, and a 47% rise in infrastructure software revenue, attributed to the integration of VMware (NYSE:VMW). The company’s earnings per share (EPS) also exceeded projections, coming in at $1.60 compared to the anticipated $1.51. Looking ahead, Broadcom forecasts second-quarter revenues of $14.9 billion, with AI revenues expected to grow by 44% year-over-year to $4.4 billion.

Analyst reactions to Broadcom’s performance were mixed. CFRA maintained a Buy rating, citing the company’s strong AI revenue growth and potential long-term opportunities with major hyperscalers. KeyBanc Capital Markets raised its price target for Broadcom to $275, maintaining an Overweight rating, reflecting optimism about Broadcom’s position as a leading custom AI ASIC provider. In contrast, Raymond (NSE:RYMD) James kept a Market Perform rating, expressing caution over competitive pressures and potential risks such as export controls. Despite these differing views, Broadcom continues to focus on expanding its AI semiconductor business and strengthening its relationships with key customers, including Google (NASDAQ:GOOGL), Meta (NASDAQ:META), and ByteDance.

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