Broadcom shares powered to a fresh record high in early Thursday trading after the networking-chip maker boosted its AI-revenue forecast and unveiled plans for a stock split following a stronger-than-expected quarterly earnings report.
Broadcom (AVGO) , one of the market's key beneficiaries of the recent surge in AI investment, has added nearly $340 billion in market value over the past year thanks in part to robust demand for its specialized networking chips.
The chips occupy a central role in AI systems, where large data models require a series of networks, connected by nodes, that determine the speed at which the collection of information in one network is passed along to the next.
Broadcom's application-specific integrated circuits, also known as ASIC chips, help these multiple networks communicate with each other, overcome congestion, and ultimately accelerate the speed and reliability with which they process information.
"Networking these AI accelerators is very challenging, but the technology does exist today in Broadcom, where the deepest and broadest understanding of what it takes for complex large workloads to be scaled out in an AI fabric," CEO Hock Tan told investors on a conference call late Wednesday.
Broadcom CEO Tan lifts AI-growth forecast
"We expect the strength in AI to continue. And because of that we now expect networking revenue to grow 40% year on year, compared to our prior guidance of over 35% growth," he added.
Broadcom also noted that AI revenue rose 280% from a year earlier to around $3.1 billion over the three months ended in May, the group's fiscal second quarter. The group sees that tally topping $11 billion by the end of its financial year.
Adjusted earnings for the quarter rose 6.2% from the year-earlier period to $10.96 a share, while overall revenue was up 43% to just under $12.5 billion. Both figures firmly topped Wall Street forecasts.
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"This was a solid report from Broadcom," said Cantor Fitzgerald analyst C.J. Muse. "While the company only raised its FY24 revenue outlook from $50 billion to $51 billion, much of the improvement is being led by VMWare, leaving room for AI as an additional source of upside."
Muse lifted his Broadcom price target by $275 to $1,875 a share. He carries an overweight' rating on the stock.
"Broadcom’s fundamentals should push higher from here, led by AI, a cyclical recovery in the non-AI-semiconductor businesses, and a continued acceleration in VMWare revenues," added Muse.
Big price target boosts
A host of Wall Street analysts rushed to adjust their price targets on the group, taking the median level $250 higher to $1,950 a share.
Oppenheimer analyst Rick Schafer took his price target to $2,000 from $1,765, while Citi analyst Christopher Danely added $190, so his target now sits at $1,750.
Jefferies analyst Blayne Curtis has Wall Street's highest price target at $2,050 a share while the lowest is from Rosenblatt's Hans Mosesmann at $1,650 each.
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Wells Fargo analyst Aaron Rakers, who lifted his price target by $270 to $1,700 a share following last night's earnings report, also noted the implied gains in non-AI revenue, which he pegged at a "too conservative" rate of around 20%.
That said, AI gains remain the key tailwind for Broadcom's fiscal-second-half sales, according to Third Bridge analyst Lucas Keh. He sees additional yearly revenue opportunities of $5 billion from Google and $2 billion from Meta Platforms for Broadcom's custom ASIC solutions.
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“Broadcom's position in 800GB switches (holding over 60% of this market) enables them to be the first choice in data center/AI infrastructure buildouts, only challenged by Nvidia's NVlink at the moment," Keh added.
"Our experts project a 38%-40% growth rate for their networking solutions, higher than the estimated 35% growth.”
Broadcom's board declared a 10-for-1 stock split, effective after trading closes on July 12. Shareholders of record July 11 will receive nine new Broadcom shares for each one that they hold.
Broadcom shares were marked 15.1% higher in early trading to change hands at $1,720.25 each, a move that would extend the stock's year-to-date gain to around 58%.
The stock hit an all-time high of $1,735.85 each earlier in the session.
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