Bernstein Reiterates Outperform on Broadcom, $250 Price Target

Bernstein SocGen Group analyst Stacy Rasgon reiterated an Outperform rating and $250 price target on Broadcom Limited (NASDAQ: AVGO).

“Broadcom’s FQ125 earnings were good, above the street on revenues and EPS ($14.9B/ $1.60 vs the Street $14.6B/$1.50) with upside coming from both semis ($8.21B vs Street $8.15B) and software ($6.7B vs Street $6.5B).

While non-AI semis appear to have come in somewhat below as the core networking and storage recovery remains slow, AI semi revenues were strong and more than made up the difference, coming in ~$300M ahead of guidance at ~$4.1B on strength in networking.

Gross margins at 79.1% were well above expectations; opex was below.

And amid a very cloudy environment for AI stocks FQ225 guidance was sunny, seen above consensus at $14.9B and 66% EBITDA margins, with EPS implied ~$1.56 (Street at $14.6B/ $1.51).

Semis are seen at $8.4B, a bit above consensus with AI sales up another ~$300M to ~$4.4B (so core semis at ~$4B, down a bit QoQ mostly on seasonal wireless declines).

Gross margins are seen at ~78.9%, down 20bps and above consensus; opex is ticking up a bit as the company further invests R&D in next gen AI accelerators and networking.

Software (~ $6.5B) is seen down a bit QoQ as the deal pushouts captured in Q1 roll off but is still seen largely in-line with consensus. Perhaps the AI trade isn’t as dead as feared?

The general trends in Broadcom’s near-term business appear similar to what we have observed for a while, namely weak core business more than offset by AI strength (which is probably fine for now), and over the next several quarters that AI strength should continue to ramp into the 2H as their new 3nm XPUs move into production.

But amid AI nervousness management’s view of the future is becoming even more positive. They of course reiterated their FY2027 $60-$90B TAM estimate (based on 3 current customers).

But they also added 2 new customers to list of their current “engagements,” so now we know that Broadcom is actively working with SEVEN different potential ASIC customers (3 active and 4 potentially in the works).

And in the meantime execution remains extremely solid, and frankly a breath of fresh air in what has been a very choppy tape. Tweaking estimates, maintaining our $250 PT and OP rating.”

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