Broadcom falls despite in-line outlook, but Wall Street defends, citing 'AI tailwind'
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Broadcom (NASDAQ:AVGO) shares fell more than 4% in pre-market trading on Friday after it reported third-quarter results and guidance that were seen as mostly in-line, but Wall Street analysts took to its defense, citing its opportunities in artificial intelligence.
BMO Capital analyst Ambrish Srivastava reiterated his outperform rating on Broadcom (AVGO) shares, while boosting his price target to $1,000, noting that while the majority of the business is "stable," it is seeing growth from generative artificial intelligence.
On the conference call, CEO Hock Tan said that without AI, its chip unit would've been flat year-over-year. Instead, its semiconductor solutions segment accounted for $6.94B in revenue during the quarter, up 5% year-over-year and slightly above the $6.87B that analysts were expecting.
Bank of America analyst Vivek Arya reiterated his buy rating on Broadcom (AVGO), noting that the upside from AI "cushions" the headwinds seen in the enterprise. 
Arya said he sees a path to the company earning between $50 and $55 per share by fiscal 2025 and 2026, citing a recovery in non-AI segments and "upside" from AI. 
Mizuho Securities analyst Vijay Rakesh also boosted his price target on Broadcom (AVGO), moving to $960 from $840, pointing out that both networking and AI remain strong, with the company likely seeing a $1B tailwind that is "accelerating" into fiscal 2024.
Additionally, Rakesh also stated that the company's infrastructure software is still "solid" and the pending VMware (NYSE:VMW) deal should provide tailwinds, especially as the target date of an October 30 close approaches.
"Broadcom is confident that the combination with VMware will enhance competition in the cloud and benefit enterprise customers by giving them more choice and control where they locate their workloads," Tan said on the earnings call.
Wells Fargo analyst Aaron Rakers echoed these thoughts, although he added that the stock is likely lower due to the fact that investors expected "stronger [guidance] due to generative AI.
"Management reiterated expectations that AI spend will represent [more than] 25% of semiconductor revenue in F2024," Rakers wrote in a note. "AI visibility remains somewhat limited past 2024 and the company is shipping to meet demand."

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