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On Friday, Wolfe Research maintained a Peer Perform rating on Broadcom Limited (NASDAQ:AVGO), following the company’s announcement of a modest beat on its report and guidance. With a current market capitalization of $844 billion, Broadcom’s stock has experienced a significant rise over the past year, outperforming peers and broader indices. According to InvestingPro analysis, the stock appears overvalued at current levels, trading at high multiples across various metrics.
Broadcom reported notable growth in AI silicon, which is anticipated to have a substantial impact on the company’s fiscal year 2025 outlook. The expected strong ramp-up of Broadcom’s TPU revenue in the second half of fiscal year 2025 was highlighted as a key driver. This growth is primarily attributed to improving conditions in certain cyclical segments and the expansion of the company’s AI business, which is projected to account for approximately 28% of fiscal year 2025 revenue. The company’s impressive 40.3% revenue growth and 76.26% gross profit margin demonstrate its strong execution capabilities. InvestingPro data shows the company maintains good financial health with strong profitability metrics.
Despite the positive developments and the AI business warranting a premium, Wolfe Research pointed out that the rest of Broadcom’s operations continue to exhibit the same characteristics of slow growth and high cash flow, which have traditionally led to a lower multiple. The stock is currently trading at around 26 times Wolfe Research’s revised earnings per share (EPS) estimate of $7.82 for fiscal year 2026, reflecting an 8 turn premium compared to Broadcom’s historical multiples.
The firm also noted that while Broadcom’s AI business may deserve a premium valuation, there are more concentrated investment opportunities available in the AI space with similar valuations. Broadcom’s stock performance has been robust, with a 33% increase over the last year, compared to Nvidia (NASDAQ:NVDA)’s 25% gain and Marvell (NASDAQ:MRVL)’s 11% decline, and outpacing the S&P 500’s 12% rise and the SOX’s 10% drop during the same timeframe.
In other recent news, Broadcom Limited has reported strong financial results, with its earnings and revenue surpassing expectations. The company achieved combined revenue of $29.8 billion and earnings per share (EPS) of $3.16, exceeding consensus estimates of $29.3 billion in revenue and an EPS of $3.01. Broadcom’s AI semiconductor segment played a significant role, generating $4.1 billion in revenue, marking a 77% year-over-year increase. The company has projected AI revenue to grow to $4.4 billion in the upcoming quarter, indicating a 7% quarter-over-quarter increase. Analysts from Citi, Cantor Fitzgerald, Mizuho (NYSE:MFG), Piper Sandler, and Bernstein have maintained positive ratings on Broadcom, with price targets ranging from $220 to $300, citing the company’s strength in AI and robust financial performance.
Broadcom’s recent AI engagements include seven custom AI XPU customers, with shipments anticipated for two additional engagements by the end of the year. The company’s infrastructure software segment also exceeded forecasts, driven by VMware (NYSE:VMW)’s transition to subscription services. Despite some challenges in the non-AI semiconductor business, Broadcom’s overall performance has been bolstered by its advancements in AI and networking. Analysts remain optimistic about Broadcom’s growth potential, highlighting the company’s strategic focus on AI and its ability to mitigate risks associated with sanctions and market shifts. Broadcom’s continued investment in research and development for next-generation AI accelerators further underscores its commitment to maintaining its competitive edge.
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