Broadcom’s AI Chip Leadership Puts Pressure on Nvidia and Marvell, Analysts Say
Broadcom Inc (NASDAQ:AVGO) stock surged Friday after it reported better-than-expected fourth-quarter adjusted EPS results and raised its quarterly common stock dividend.
The company reported a topline of $14.05 billion, up from $9.3 billion, compared to the analyst estimate of $14.57 billion. EPS of $1.42 missed the analyst consensus of $1.46.
B of A Securities analyst Vivek Arya reiterated Broadcom with a Buy and raised the price target from $215 to $250.
JP Morgan analyst Harlan Sur maintained Broadcom with an Overweight and raised the price target from $210 to $250.
Rosenblatt: Broadcom came in with a slight beat on continued AI and networking momentum and some VMWare first-quarter pushouts. Non-AI dynamics continue to demonstrate modest cyclical recovery.
The Street will pivot on management’s disclosure of the line-of-sight AI serviceable available market (SAM) at its current custom ASIC (XPU) 3 hyperscaler customers of $60 billion—$90 billion by 2027, up from the $15 billion—$20 billion level in 2024.
Interestingly, Broadcom has two new potential engagements that could eventually match the size of the current three.
The AI 3-year outlook supports the ~60% CAGR of Advanced Micro Devices, Inc.’s (NASDAQ:AMD) TAM of $500 billion for the 2027 and 2028 timeframes.
Management implied strong prospects for maintaining AI custom ASIC leadership and share gains over Nvidia Corp (NASDAQ:NVDA) GPUs.
Broadcom already has working custom ASIC 3nm silicon that will ship this Spring, well ahead of anybody in the market.
While custom ASIC sister Marvell Technology, Inc (NASDAQ:MRVL) is also in the 3nm race, it is roughly a year behind Broadcom. Mosesmann’s fiscal 2025 revenue and adjusted EPS estimates remain unchanged.
B of A Securities: The rerating reflects Broadcom’s expanding custom-chip (ASIC) AI, surging AI opportunity, and potential to maintain a position at large wireless customer Apple.
Near-term results were inline, though the pushout of some software deals from the fourth to the first quarter helped Broadcom guide the first quarter inline versus concerns of missing due to seasonal headwinds, the analyst said.
Arya projected fiscal 2025 revenue of $61.1 billion (prior $59.3 billion) and EPS of $6.27 (prior $6.00). He expects fiscal 2026 revenue of $70.2 billion (prior $68.5 billion) and EPS of $7.50 (prior $7.31).
His forecast implies a growth trajectory of about 15% sales and 20% EPS over the next three years across a diversified silicon and infrastructure software base.
Based on Broadcom’s leading capabilities and IP in leading-edge logic, networking, memory, and interface design, Arya projected its AI sales to grow from $12 billion in the current year to about $30 billion by calendar 2027.
However, Arya noted an upside to a 30% EPS CAGR towards $11-$12/share by calendar 2027, assuming AI sales get to $53 billion instead, based on Broadcom maintaining its current 70% share of a larger $75 billion SAM.
There could be further upside since, per Broadcom, the stated range is only for its current three customer’s “line-of-sight” intention to each build 1 million unit custom accelerator (XPU) clusters requiring an 80% and 20% mix of compute and networking.
JP Morgan: Broadcom delivered solid fourth-quarter quarterly results on continued strong sequential growth in its AI semiconductor segment, which offset lower software revenues.
For the first quarter, Broadcom guided revenues in line with consensus expectations and better than market expectations on sustained strong AI demand and software revenue acceleration.
The fiscal 2024 AI revenues were $12.2 billion, up 3 times year-on-year. Sur expects them to grow to $17 billion-$18 billion (+40% Y/Y) in fiscal 2025, given continued strong cloud and hyperscaler capex spending trends with a focus on AI infrastructure build-out and second-half ramp of Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) Google’s next-gen TPU v6 3nm AI accelerator ASIC.
More importantly, Broadcom expects the AI SAM opportunity for its three existing cloud/hyperscalers to accelerate, driven by continued substantial investments in multi-generational XPU road maps and larger cluster sizes.
Even applying a more conservative market share assumption, Sur noted that Broadcom’s AI business is growing at a 40%- 50%+ revenue CAGR over the next several years.
In the near term, despite a product handoff from the TPU v6 inference chip at 5nm to the TPU v6 training chip at 3nm, Broadcom is still guiding for sequential growth in its AI revenues for the first quarter.
The TPU v6 3nm training chip will likely move into a high volume ramp in the second half of next fiscal year, and this one SKU Sur noted can drive $8 billion+ for Broadcom in fiscal 2025.
Given its portfolio breadth, diversification, and product cycles, Broadcom continues to drive a stable revenue growth profile even during macro volatility. Broadcom generated strong free cash flow for the year, which resulted in an 11% dividend increase.
Sur projected fiscal 2025 revenue of $62.7 billion and EPS of $6.50.
Price Action: AVGO stock is up 19.7% at $216.20 at last check Friday.
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