Broadcom turns 2% higher Friday as analysts weigh the AI upside, boost estimates
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Broadcom stock (NASDAQ:AVGO) rose 2% at midday Friday following its fiscal second-quarter earnings beat paired with solid current-quarter guidance, even as its sales slowed from pandemic-related surges.
The stock had declined somewhat postmarket Thursday following the report, but turned higher Friday as investors absorbed the potential benefit from the artificial-intelligence boom.
The company predicted that sales linked to AI would double this year -- reaching $1B per quarter, according to CEO Hock Tan, who had also previously warned that COVID-19 sales surges couldn't last.
A forecast for fiscal third-quarter revenues of $8.85B topped consensus for $8.71B, though such an increase (marking growth of less than 5%) would be the slowest in years.
Analysts largely reiterated Buy ratings and raised estimates in response to the report. BofA boosted its 2024 estimates for sales and earnings per share by 8-9%, and raised its price target to a Street-high $950 per share, implying another 18% upside.
It's taking a conservative approach in modeling, analyst Vivek Arya said, as they wait to see how AI networking opportunities develop. But "In a bull case scenario where AVGO can grow AI exposure to ~25% of sales (and hold growth rates of non-AI assets at previously mentioned levels), we see incremental $2B/$3 upside to our sales/EPS estimates."
KeyBanc reiterated an Overweight rating and boosted its own price target to $940 from $820. Analyst John Vinh also raised estimates, noting "based on AVGO's AI outlook, there's likely meaningful upside to FY23 AI expectations of $3.8B and upside to FY24 Networking [revenues]."
And Truist raised its own estimates, saying "Buy for dividends, M&A benefits, and a sprinkle of AI." Analyst William Stein said "As management offers more details in AI, including ~70% growth, a key consideration becomes whether this is adds to, or cannibalizes, the rest of AVGO's semi growth."
"We suspect AI will cannibalize some of AVGO's semi sales, but will be net additive to growth," he said, boosting his forecast for calendar 2024 EPS to $46.83 from $42.44. He didn't see any negative updates coming out of the earnings report.
For more detail, dig into Seeking Alpha's transcript of Broadcom's earnings call.