JP Morgan analyst Harlan Sur maintained an Overweight rating on Broadcom Inc (NASDAQ:AVGO) with a price target of $210.
Broadcom will report fiscal fourth-quarter 2024 earnings on Thursday. Sur noted a strong demand profile for AI products, continued cyclical recovery in its diversified semiconductor (ex-AI) end markets, and unlocked VMWare revenue synergy.
As a result, the analyst expects revenue, earnings, and free cash flow to be better than JP Morgan and consensus expectations (revenues coming in at $14.2 billion-$14.3 billion versus consensus at $14.1 billion). He projected an adjusted EPS of $1.40.
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Off of a higher fourth-quarter base, Sur noted fiscal first-quarter 2025 revenue guidance at $14.2 billion-$14.4 billion or flattish sequential growth below consensus of $14.64 billion) and closer to the analyst’s below-Street estimates of $14.4 billion. He projected an adjusted EPS of $1.46.
Sur noted the lower revenue guidance is due to more seasonal trends in its core semiconductor businesses combined with a product transition at its large AI ASIC customer Google, but partially offset by continued strong software renewals at VMware and strong AI networking.
Sur noted that the AI production transition involves a product handoff from the TPU inference chip at 5 nm to the TPU v6 training chip at 3nm, which should cause a temporary AI ASIC revenue pause in the first quarter.
However, Sur expects sequential growth to resume in the second quarter as the TPU v6 3nm training chip moves into a high-volume ramp. This should be a strong tailwind for the remainder of fiscal 2025.
Overall, for fiscal 2025, Sur expects revenue and EPS upside for the full year, continued strong demand for its AI products, and a more synchronized end market recovery in its diversified semiconductor (ex-AI) end markets as the year unfolds.
Sur expects Broadcom to drive ~$12 billion-$12.5 billion in AI revenues in fiscal 2024 (up three times year-on-year) with adjusted EPS of $4.84 and drive $17 billion-$18 billion in AI revenues in fiscal 2025 (40%+ growth) and adjusted EPS of $6.34 on the continued strong ramp of Google’s TPU AI processor and full-blown production ramp in Meta Platform Inc‘s MTIA AI 3nm processor combined with continued strong demand for its AI networking products and start of Tomahawk 6 ramp.
More importantly, Sur noted the team continues to meaningfully expand its AI ASIC customer design win and engagement pipeline and has recently expanded its AI customer engagement base to six customers from five customers.
