Broadcom Inc. (AVGO) is riding a wave of success fueled by the strong momentum in its AI semiconductor segment and its VMware acquisition. The company delivered impressive third-quarter earnings, exceeding both revenue and earnings per share estimates. Revenue reached $13.07 billion, surpassing expectations by 0.86%, while earnings per share of $1.24 beat estimates by 3.33%.
Despite this positive performance, Broadcom shares experienced a decline in premarket trading on Friday, dipping as much as 9.4%. However, JPMorgan analyst Harlan Sur remains optimistic about the company’s future. He has raised Broadcom’s price target to $210 by December 2025, reflecting his confidence in the company’s continued growth trajectory.
Broadcom’s AI semiconductor business continues to impress, showcasing a 3%-4% quarter-over-quarter growth in the July quarter. This momentum is expected to accelerate in the October quarter, with potential for a 10% increase. Sur projects AI revenues for fiscal year 2024 to reach $12 billion, a significant increase from the previous estimate of $11 billion.
According to JPMorgan’s analysis, Broadcom’s AI business, encompassing custom ASICs and networking solutions, is anticipated to experience a compound annual growth rate (CAGR) of 30%-40% over the next four to five years. This robust growth is further amplified by strength in Broadcom’s non-AI semiconductor business, which is projected to grow 10% quarter-over-quarter in the upcoming quarter.
The demand from major clients like Google’s parent Alphabet Inc (GOOG, GOOGL) and Meta Platforms Inc (META) for AI networking products and 3nm AI ASICs positions Broadcom for further growth in fiscal year 2025.
Broadcom’s acquisition of VMware continues to pay dividends, with a projected 25%+ quarter-over-quarter growth in the upcoming quarter. VMware’s contribution to infrastructure software revenue soared 41% in the third quarter, playing a key role in pushing Broadcom’s total revenue to $13.07 billion, exceeding the consensus estimate of $12.7 billion.
Sur highlights VMware’s robust software renewal rates and upsell opportunities, with potential for revenue to reach $4.5-$5 billion per quarter by 2025. The cyclical recovery in traditional networking and server storage further strengthens the bullish outlook.
Broadcom is witnessing a 20% year-over-year increase in non-AI semiconductor bookings, suggesting a sustained recovery in the next six to 12 months. Investors are likely to see continued upside, with Sur projecting a 30x price-to-earnings multiple applied to an estimated $7.00 per share for fiscal year 2025.
With strong AI growth, robust VMware momentum, and a solid recovery in traditional semiconductor sectors, Broadcom is well-positioned to capitalize on its diversified portfolio. The stock remains a “top pick in semiconductors” for JPMorgan.
At the time of publication, Broadcom stock was trading down 9.02% at $139.03.
