Broadcom gets boost as Morgan Stanley says conditions remain 'attractive'
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Broadcom (NASDAQ:AVGO) shares were higher in premarket trading on Friday after the semiconductor company posted first-quarter results that beat expectations, prompting Morgan Stanley to highlight strong cloud and enterprise spending.
Analyst Joseph Moore, who has an overweight rating but lowered the price target to $703 from $723 on a lower multiple, noted that despite some investor anxiety, the enterprise is "on fire" and customers are booking into 2023, as the demand for cloud remains "robust" and software and smartphone are coming in-line with estimates. 
This comes "even from a management team that expresses skepticism about higher long term growth rates in served markets, and acknowledges that there will eventually be a slowdown, but with extended backlog there is no pause in sight," Moore wrote in a note to clients.
Broadcom shares gained more than 3% to $598.07 in premarket trading. 
In addition, Moore pointed out that the broadband end market accounts for 16% of sales, a segment that grew 23% year-over-year, due to rollouts of WiFi6 and fiber-PON chips. Networking accounted for 32% of semiconductor revenue, a unit that grew 33% year-over-year. 
Broadcom also expects to see strength in the networking end-market, with a forecast for more than 30% year-over-year growth in the April quarter.
"We continue to see value in the stock on a free cash flow basis, and the company's clarity around the cyclicality of the business gives them credibility in their comments that they are booking out into [2023]," Moore explained. 
"The M&A front has been quiet, and we think the market will respond favorably to the valuation discipline shown in buying back stock if software opportunities are not what they hoped for."
Last month, a U.S. Appeals court threw out a $1.1 billion judgement against Apple (NASDAQ:AAPL) and Broadcom (AVGO) for patent infringement.