On Friday, BofA Securities updated its outlook on Broadcom Limited (NASDAQ:AVGO), increasing the price target to $250 from the previous $215 while maintaining a Buy rating on the stock. The firm's decision comes in light of Broadcom's growth in custom-chip AI, with the company expanding its customer base from three to five major clients. With a current market capitalization of $843.79B and impressive revenue growth of 32.04% over the last twelve months, Broadcom has demonstrated strong momentum in the AI space.
BofA Securities highlighted the rising AI market potential, which is projected to grow to a $60-$90 billion served available market (SAM) by calendar year 2027, a significant increase from the current $15-$20 billion base. According to InvestingPro, Broadcom maintains a "GREAT" overall financial health score, suggesting robust fundamentals to support its AI initiatives.
The analyst noted that Broadcom's near-term results were in line with expectations, despite some software deals being postponed from the fourth fiscal quarter to the first fiscal quarter. This shift allowed Broadcom to guide the first fiscal quarter in line with the market, allaying fears of a shortfall due to seasonal headwinds.
The company's strong operational efficiency is reflected in its impressive 74.71% gross profit margin, while BofA Securities sees this as a positive sign for the company's performance.
In response to these factors, BofA Securities has raised its fiscal year 2025/26 earnings per share (EPS) forecasts for Broadcom by 5% and 3%, respectively, to $6.27 and $7.50. The new price objective reflects a forward price-to-earnings (P/E) multiple of 32 times the estimated calendar year 2026 earnings, compared to the previous 34 times calendar year 2025 earnings.
Currently trading at a P/E ratio of 160.37x, this valuation is at the upper end of Broadcom's historical P/E range of 10-33 times, justified by robust EPS growth expectations. InvestingPro's comprehensive analysis suggests the stock is currently trading above its Fair Value, with additional insights available in the Pro Research Report.
The analyst's outlook suggests a trajectory of approximately 15% sales growth and 20% EPS growth over the next three years for Broadcom. This growth is expected to be supported by a diversified base across both silicon and infrastructure software sectors. The company has demonstrated its commitment to shareholder returns with a 15.22% dividend growth rate over the last twelve months.
The revised price target and positive expectations underscore the firm's confidence in Broadcom's ability to maintain its market position, particularly with key customers such as Apple (NASDAQ:AAPL), contrary to previous assumptions of declining content. For deeper insights into Broadcom's financial health and growth metrics, investors can access the detailed Pro Research Report available on InvestingPro.
In other recent news, Broadcom Limited's shares have seen an upward revision in their price targets by multiple financial analysts following the company's recent earnings report. The report revealed a beat on the October quarter earnings per share and an upbeat outlook for the January quarter.
Notably, Evercore ISI raised their target to $250 from $201, maintaining an Outperform rating. Deutsche Bank (ETR:DBKGn), UBS, Piper Sandler, Truist Securities, and KeyBanc also increased their price targets, reflecting confidence in Broadcom's strong operational efficiency and growth potential, particularly in the artificial intelligence (AI) sector.
Broadcom's AI business, which caters to three current hyperscale customers, has seen substantial revenue growth, with the company estimating a serviceable available market (SAM) of approximately $60-90 billion by the fiscal year 2027. This projection is further bolstered by the acquisition of two additional hyperscale customers for its XPU business, signifying growth opportunities and validation of the increasing demand for custom processing solutions among hyperscalers.
These recent developments underline the company's robust performance, with an impressive year-to-date return and a gross profit margin of around 75%. Broadcom's management also expressed confidence in the industry's growth potential, suggesting that the use of AI-generated synthetic data could greatly expand the current scaling limits of large language models.
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