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<Research> BofAS Raises Broadcom Inc. (AVGO.US) TP to USD530, Reiterates Buy on Improved AI Computing Visibility
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BofAS issued a report stating that Broadcom Inc. (AVGO.US)'s results for the second fiscal quarter ended May 3 and guidance for the third fiscal quarter ending August 2 were only slightly above market expectations. However, the bank emphasized that the company’s absolute AI growth remains on track, with AI revenue expected to increase by about 180% YoY in FY2026 and nearly 100% YoY in FY2027. Management did not raise its previously stated FY2027 AI revenue target of approximately USD100 billion despite high expectations, considering strong TPU growth momentum. The bank believes this reflects a conservative stance due to ongoing supply constraints on the customer side. Meanwhile, multiple new custom XPU customers (Anthropic, Meta, OpenAI, and two others) are expected to ramp up gradually over the coming quarters, adding to the strong Google TPU momentum. Robust software growth in the third fiscal quarter (up more than 30% YoY) also indicates multiple growth vectors under the AI theme. Overall, the bank continues to expect EPS to exceed USD30 by calendar year 2030, implying a CAGR of about 40% in EPS between calendar years 2025 and 2030. It reiterated a Buy rating on Broadcom Inc., raised its revenue and EPS forecasts for FY2026 to FY2028 by 2% to 6%, and lifted its TP from USD450 to USD530. The new valuation is based on an accelerated growth outlook, applying 30x calendar year 2027 expected P/E (including stock-based compensation), up from the previous 26x. This remains attractive relative to a PEG ratio of only about 0.5x, in line with AI computing peers at 0.4x to 0.7x. The bank noted that visibility on Broadcom Inc.’s AI computing programs now extends to 2028. Several new customers (Anthropic at 5GW from 2027, Meta at 3GW during 2027-2028, OpenAI at 1.3GW in 2027, totaling 10GW, plus approximately USD6 billion in procurement commitments from two other customers) will ramp up over the next few years. Despite rising market concerns that Google may internalize production through MediaTek (2454.TW), the core Google TPU program remains solid, with a five-year agreement reinforcing Broadcom Inc.’s position as the primary design partner. Broadcom Inc. has also fully secured multi-year supply for FY2026 to FY2028 to support this growth. The bank cautioned that as the mix of customized products continues to increase, gross margin may remain under pressure, potentially deteriorating from the forecast 74% in the third fiscal quarter to the 72%-73% range. It also highlighted rising competitive pressure in customer programs as clients seek to diversify supply sources and reduce exclusive reliance on Broadcom Inc. Compared with NVIDIA (about USD30 billion to USD35 billion per GW) and AMD (about USD15 billion to USD20 billion per GW), which provide complete systems, Broadcom Inc.’s content value in accelerator chips and network switches remains relatively limited at about USD10 billion per GW and may be difficult to expand significantly from current levels. (da/a) Auto-translated by AI This article was automatically translated by AI, the original language version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. More Details
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