EU and US could reach trade deal this weekend - Reuters
Investing.com -- HSBC has upgraded Broadcom (NASDAQ:AVGO) shares to Buy from Hold, citing a sharp upward revision in its ASIC revenue estimates and fading concerns over wireless and VMware headwinds.
The bank also raised its target price (TP) to $400 from $240, representing a 58% upside from Monday’s closing price
Broadcom shares jumped more than 3% by 10:14 ET on Tuesday.
HSBC analysts said their earlier cautious stance on the stock was based on a lack of visibility in Broadcom’s ASIC pipeline and potential wireless share loss to Apple (NASDAQ:AAPL).
“We now believe its ASIC revenues will significantly beat market expectations from better ASIC project visibility as well as average selling price (ASP) pricing power,” said Frank Lee, Global Head of Tech Hardware & Semi Research at HSBC.
The analyst estimates that Broadcom’s ASIC revenue will rise to $28.4 billion in fiscal year 2026 (FY26) and $42.8 billion in FY27, which is 42% and 69% above consensus estimates, respectively.
Lee highlighted that hyperscaler capital expenditure (capex) is increasingly shifting toward custom silicon, driving demand for Broadcom’s ASICs.
“We now expect ASIC blended ASPs to increase 92% y-o-y in FY26e and another 25% in FY27e,” the note added.
The pricing uplift is underpinned by a shift to larger die sizes and newer memory technologies, as ASICs move toward specs comparable to AI GPUs. HSBC expects Broadcom to have up to seven ASIC customers by FY27, compared with just three at Marvell (NASDAQ:MRVL) and one at Alchip.
Concerns around Apple’s in-sourcing of wireless chips have also eased. HSBC now projects that 88% of Apple products will still use Broadcom-designed parts in FY26, leading the bank to revise its wireless revenue forecasts higher and bring them in line with consensus.
Similarly, VMware revenue growth is expected to remain intact through FY26, as customer transitions to subscription models continue.
“Broadcom continues to move VMware customers to subscription models for another 18 months at least so we do not expect any imminent slowdown,” Lee points out.
With respect to valuation, HSBC assigns a 32x target price-to-earnings (P/E) multiple for FY27, reflecting a 10% premium to Broadcom’s peak historical P/E over the past three years.
“The ASIC revenue opportunity can drive upside and help re-rate the stock towards a new peak P/E,” the bank said. “With an implied upside to our TP of 58%, we upgrade the stock to a Buy (from Hold).”