Broadcom stock holds Buy rating after strong Q1 results

On Friday, CFRA maintained a Buy rating on Broadcom Limited (NASDAQ:AVGO), a prominent player in the Semiconductors & Semiconductor Equipment industry with a market capitalization of $844 billion, following the company’s robust financial performance in the first quarter. Broadcom reported a 25% year-over-year increase in January-quarter revenue, reaching $14.92 billion, which surpassed the analyst’s projection of 22% growth. According to InvestingPro data, the company maintains an impressive gross profit margin of 76.26%. A significant contributor to this success was the company’s artificial intelligence (AI) revenue, which surged 77% year-over-year to $4.1 billion, outpacing the expected 65% increase. Moreover, infrastructure software revenue experienced a 47% year-over-year uplift to $6.7 billion, thanks to the integration of VMware (NYSE:VMW) and exceeding forecasts of a 41% rise.

The company’s non-GAAP earnings per share (EPS) also saw an impressive 45% climb to $1.60, topping the consensus estimate of $1.51. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) constituted 68% of the revenue, which beat the analyst’s prediction of 66%. While the stock currently trades at a relatively high P/E ratio of 142.65, InvestingPro analysis suggests strong future growth potential, with 15+ additional insights available to subscribers. For the April quarter, Broadcom anticipates revenues of $14.9 billion, marking a 19% year-over-year increase and slightly above the consensus estimate of $14.7 billion. The expected adjusted EBITDA margin aligns with the analyst’s forecast at 66% of the projected revenue.

Broadcom’s AI semiconductor business is anticipated to maintain its momentum into the April quarter, with projected AI revenue of $4.4 billion, indicating a 40% year-over-year growth. CFRA believes that the AI semiconductor revenue has the potential to significantly enhance Broadcom’s business model over the next three years. Additionally, the software segment is expected to continue its strong performance, especially considering it’s been a year since the VMware acquisition was completed.

The analyst also noted that Broadcom has maintained its long-term outlook on its relationship with three major hyperscalers. Furthermore, the company has identified four customers that are deeply engaged in developing custom silicon chips, which are not included in its serviceable addressable market (SAM) forecast of $60 billion to $90 billion for fiscal year 2027. This development suggests additional growth opportunities for Broadcom beyond its current market projections. With an impressive revenue growth of 40.3% in the last twelve months and a dividend growth rate of 28.26%, Broadcom demonstrates strong momentum. For a comprehensive analysis of Broadcom’s growth potential and valuation metrics, access the full Pro Research Report available on InvestingPro, which covers 1,400+ top US stocks with actionable insights.

In other recent news, Broadcom Inc. reported strong financial results for the first quarter of fiscal year 2025, with earnings per share (EPS) of $1.60, surpassing the forecasted $1.51. Revenue reached $14.92 billion, exceeding the anticipated $14.62 billion, marking a 25% year-over-year increase. The company also reported significant growth in AI revenues, which reached $4.1 billion, a 77% increase year-over-year, and projected AI revenues of $4.4 billion for the second quarter. KeyBanc Capital Markets responded to these results by raising its price target for Broadcom to $275 from $260, maintaining an Overweight rating due to the company’s robust AI sales. Additionally, Broadcom’s management continues to work with several key hyperscale customers, including Google (NASDAQ:GOOGL), Meta (NASDAQ:META), and ByteDance, and is engaged with other companies like Apple (NASDAQ:AAPL) and OpenAI for future AI projects. Raymond (NSE:RYMD) James, however, maintained a Market Perform rating, citing competition from Nvidia (NASDAQ:NVDA) and potential risks such as export controls. Despite these challenges, Broadcom remains optimistic about its custom AI ASIC business and the growing demand for AI infrastructure.

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