a day ago
Broadcom Gets Mixed Reactions As Modest Earnings Beat Sparks Profit-Taking
Wall Street analysts rerated Broadcom Inc (NASDAQ: AVGO) after it reported second-quarter financial results on Thursday. The company reported second-quarter revenue of $15 billion, up 20%, beating analyst estimates of $14.99 billion, driven by continued momentum in AI semiconductor solutions and VMware.
The semiconductor company reported second-quarter adjusted earnings of $1.58 per share, beating analyst estimates of $1.56.
The second-quarter AI revenue grew 46% to over $4.4 billion, driven by robust demand for AI networking.
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Broadcom expects third-quarter revenue of approximately $15.8 billion, versus estimates of $15.79 billion.
JP Morgan analyst Harlan Sur maintained Broadcom with an Overweight and raised the price target from $250 to $325.
Truist Securities analyst William Stein reiterated Broadcom with a Buy and raised the price target from $267 to $295.
Rosenblatt analyst Kevin Cassidy maintained Broadcom with a Buy and raised the price target from $223 to $340.
Cantor Fitzgerald analyst Matthew Prisco reiterated Broadcom with an Overweight and a $300 price target.
Benchmark analyst Cody Acree maintained Broadcom with a Buy and raised the price target from $255 to $315.
JP Morgan analyst Sur is encouraged by the Broadcom team's strong line of sight to fiscal 2026 AI revenue profile driven by strong cloud/hyperscaler capex spending trends with continued focus on AI training combined with accelerating AI inference workloads, continued ramp of Alphabet Inc (NASDAQ:GOOGL) Google's next-gen TPU v6/v7 3nm AI accelerator ASICs, ramp up of Meta Platforms (NASDAQ:META) 3nm, and continued strong adoption of ethernet networking.
The continued substantial AI revenues underscore Broadcom's strong design win pipeline and confirm Sur's belief that internally developed custom ASIC silicon programs offer opportunities for differentiation, efficiency gains, and improved silicon economics.
The analyst said that the fundamentals of cyclical semiconductor businesses are stabilizing across most areas. He stressed that Broadcom continues successfully converting and upselling to its VCF full-stack solution in the infrastructure software business.
Even during macro volatility, the team drives a solid revenue growth profile. Sur estimated that Free Cash Flow generation will be $26 billion this year, up 34% year over year, implying a substantial dividend raise at the end of this fiscal year. Broadcom remains his top pick in semiconductors.
Broadcom delivered only a modest upside to calendar first-quarter results and the calendar second-quarter guide. Still, Truist Securities analyst Stein noted investors were expecting a more significant beat, considering results from Nvidia Corp (NASDAQ:NVDA) and capex outlooks from hyperscale companies.
Stein stated Broadcom's long-term position in AI is stable or potentially improving, with significant customer additions (3 current and 4 potential additions) suggesting meaningful potential upside. He also anticipated long-term upside at VMWare.
Broadcom's non-AI semi-sales in the calendar first quarter aligned with Stein's estimate. Still, management guided to flat quarter-on-quarter growth, implying $4 billion in the calendar second quarter and a ~5% miss compared to his model (not surprising to him, considering that he noted excess channel inventory).
AI computes (custom accelerators) made up ~60% of total AI sales in the calendar first quarter, implying ~$2.6 billion (14% below his estimate of $3.1 billion).
However, Stein remarked that AI networking delivered $1.8 billion in sales, up 170% Y/Y and 33% above his estimate of $1.3 billion. He said that Broadcom expects to shift back to 70/30 compute/networking going forward, implying a double-digit quarter-over-quarter decline in AI networking revenue and an acceleration in custom silicon.
Rosenblatt analyst Cassidy writes in the analyst note that Broadcom reported a mostly inline quarter with AI revenue up 46% Q/Q and guided to 60% Y/Y growth.
The analyst said that based on good visibility from its three XPU customers, management believes this growth rate can continue into 2026.
He was interested in adopting Broadcom's Ethernet products to scale up connectivity and scaling out. Scale-up unit volumes are 5x to 10x higher than scale-out, Cassidy said.
The analyst noted that the applications are for both LLM training and inference. He said that with three hyper-scale customers ramping up production, management discussed the other four XPU prospects. Cassidy continued recommending the stock for its strong custom ASIC capabilities.
While the second-quarter results and third-quarter guide may be viewed as only a 'skinny beat,' underneath the covers was a very bullish outlook from Broadcom management, Cantor analyst Prisco stated. Broadcom remains Prisco's top pick.
AI Semi revenues were guided at +16% Q/Q and 60% Y/Y for the third quarter, with management then suggesting improved visibility today that gives them confidence that the AI semiconductor business can grow at this ~60% rate for all of fiscal 2025 and 2026, the analyst said.
He said that AI semiconductor revenues are projected to reach $20 billion+ in fiscal 2025 and $30 billion+ in fiscal 2026, delivering meaningful upside to consensus into calendar 2026.
Prisco remarked that non-AI Semiconductor revenues continue to bounce along the bottom while the cash cow Infrastructure Software grows modestly.
On a relatively modest beat and raise, Broadcom's shares are off about 4% after hours as investors grapple with results that were closer to the small upside that pummelled Marvell's shares last week versus the stronger outperformance delivered by Nvidia when adjusting for their Chinese exposure, analyst Acree stated.
The analyst writes that he understands investors taking profits, particularly considering the company's $120-plus run since its recent early April lows of about $139.
He continues to believe Broadcom represents an attractive opportunity as the number two provider of advanced accelerated compute and networking solutions to the AI industry, with direct leverage to the steadily increasing capex budgets of a growing number of the market's largest hyperscale investors.
Price Action: AVGO stock is trading lower by 5.25% to $243.28 at the last check Friday.
Read Next:Photo by Ken Wolter via Shutterstock
Date
Firm
Action
From
To
Mar 2022
Truist Securities
Maintains
Buy
Mar 2022
JP Morgan
Maintains
Overweight
Mar 2022
Morgan Stanley
Maintains
Overweight
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