Broadcom (AVGO) is expected to see growth acceleration in the second half of the year as VMWare bookings are off to a strong start and the company’s artificial intelligence pipeline is “solid,” BofA Securities said Friday.
Late Thursday, the chipmaker logged stronger-than-expected fiscal first-quarter results as it benefited from its VMware acquisition, completed in November, as well as AI demand. The company continues to project 2024 consolidated revenue advancing 40% year over year at $50 billion.
Although the company held its outlook steady, the sales mix is shifting more towards AI, which is now pegged to top $10 billion, up from $7.5 billion estimated previously, BofA analyst Vivek Arya said in an emailed note. VMWare has seen a strong start to the year, with overall company software bookings set to almost double sequentially to $3 billion in the current quarter and VMWare sales seen increasing 10% every quarter, according to the note.
The first half of the year could mark the trough for Broadcom’s non-AI semi sales, especially in the broadband category, with semi sales advancing to double digit growth exiting the fourth quarter and into next year, Arya said.
The company’s shares were down 6.5% in Friday afternoon trade.
The stock’s 51% run in the last three months compared with the PHLX Semiconductor index’s 38% gain makes it “vulnerable” to short-term volatility, the analyst said. Factors such as the company sticking with its outlook and a miss by its semiconductor solutions sales in the first quarter could prompt the bears to “push back on higher valuation,” according to the note.
BofA increased its 2025 adjusted EPS outlook for Broadcom by 3% to $57.82. The brokerage sees the company’s long-term annual EPS between $70 and $75 as sales increase by double digits.
“We think AI sales (now over 30% of semis) could secularly grow at a (20% to 25% compound annual growth rate) with more contribution from high-speed switches,” Arya said. The brokerage sees Facebook parent Meta Platforms (META) as an important customer of application-specific integrated circuits for Broadcom, in addition to “existing strong position” at Alphabet’s (GOOG, GOOGL) Google, according to the note.
BofA increased its price objective on Broadcom’s stock to $1,680 from $1,500 while reiterating its buy rating.