Broadcom AVGO shares have appreciated 32.4% in the past month, outperforming both the Zacks Computer & Technology sector and the Zacks Electronics Semiconductors industry. Over the same timeframe, the sector and industry have returned 0.3% and 18.9%, respectively.
AVGO is benefiting from strong demand for its networking products and custom AI accelerators (XPUs). In fiscal 2024, AI revenues jumped 220% over fiscal 2023 to $12.2 billion and represented 41% of semiconductor revenues.
The acquisition of VMware has benefited Infrastructure software solutions. Since closing the acquisition, AVGO added more than 4500 of its largest 10,000 customers to VMware Cloud Foundation, which enables enterprises to deploy private cloud environments on-prem.
Broadcom’s strong partner base, including Arista Networks, DELL, Juniper and Supermicro, has been a key catalyst.
AVGO Outperforms Sector
Image Source: Zacks Investment Research
Strong demand for Broadcom’s application-specific integrated chips (ASICs), designed to support AI and machine learning and make these tasks more efficient, aids top-line growth. Alphabet GOOGL and Meta Platforms META are notable users of Broadcom’s ASICs.
AVGO’s Prospects Ride on Expanding AI Portfolio
Broadcom expanded its AI portfolio with the launch of the industry’s first Face-to-Face (F2F) 3.5D XPUs. Its 3.5D eXtreme Dimension System in Package (XDSiP) platform technology is now available, which helps consumer AI customers develop next-generation XPUs.
XPUs are necessary to train Generative AI (GenAI) models, and they require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. 3.5D integration, which combines 3D silicon stacking with 2.5D packaging, is increasingly becoming popular for improved XPUs.
Broadcom’s F2F stacking directly connects the top metal layers of the top and bottom dies, providing a dense and reliable connection with minimal electrical interference and exceptional mechanical strength. The F2F offers better interconnect density (seven times increase in signal density) and power efficiency (10 times reduction in power consumption in die-to-die interfaces) compared with the Face-to-Back approach.
Broadcom’s F2F 3.5D XPU leverages Taiwan Semiconductor’s TSM cutting-edge process nodes and 2.5D CoWoS packaging technologies. It integrates four compute dies, one I/O die and six HBM modules.
AI Focus to Boost Broadcom’s Prospects
In the fourth quarter of fiscal 2024, networking revenues, which represented 76% of networking, surged 158% year over year. AI XPU shipments doubled to AVGO’s three hyperscale customers, and it saw four times growth in AI connectivity revenues driven by Tomahawk and Jericho shipments globally.
For the first quarter of fiscal 2025, AVGO expects the momentum in AI connectivity to remain strong as more hyperscalers deploy Jericho3-AI in their fabrics. Broadcom expects first-quarter fiscal 2025 AI revenues to grow 65% year over year to $3.8 billion.
The latest XPUs expand Broadcom’s AI portfolio. Its next-generation XPUs are in 3 nanometers and will be the first of its kind to market in that process node. AVGO remains on track for volume shipment of these XPUs to its hyperscale customers in the second half of fiscal 2025.
AVGO sees massive opportunities in the AI space as specific hyperscalers have started to develop their own XPUs. It believes by 2027 each of AVGO’s three hyperscalers plans to deploy 1 million XPU clusters across a single fabric. Serviceable Addressable Market for XPUs and network are expected between $60 billion and $90 billion in fiscal 2027 alone.
AVGO’s Earnings Estimate Revision Shows Upward Trend
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $6.30 per share, up 3% over the past 30 days, indicating 29.36% year-over-year growth.
The consensus estimate for fiscal 2025 revenues is pegged at $61 billion, indicating 18.28% growth over fiscal 2024’s reported figure.
The Zacks Consensus Estimate for fiscal first-quarter earnings is pegged at $1.50 per share, up over the past 30 days, indicating 36.36% year-over-year growth.
The consensus estimate for first-quarter fiscal 2025 revenues is pegged at $14.62 billion, indicating 22.23% growth over the year-ago quarter’s reported figure.
AVGO’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 3.57%.
Broadcom Inc. Price and Consensus
Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
AVGO Shares Trading at a Premium
AVGO stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales, AVGO is trading at 17.7X, higher than its median of 12.48X and the sector’s 7.14X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. We believe these factors justify the premium valuation and will continue to drive the share price momentum in 2025.
Broadcom currently has a Zacks Rank #2 (Buy) and a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Broadcom Inc. (AVGO) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
