Broadcom can grow AI revenues at a 30-35% CAGR says BofA

November 06, 2024 04:51 AM AEDT | By Investing

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Broadcom can grow AI revenues at a 30-35% CAGR says BofA

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Investing.com -- Bank of America analysts believe Broadcom Inc. (NASDAQ:AVGO) is poised to see strong growth in its artificial intelligence (AI) revenues, projecting a compound annual growth rate (CAGR) of 30-35% in the coming years.

BofA reiterated a Buy rating on Broadcom, citing the company’s leadership in AI compute and networking, coupled with its robust free cash flow generation.

The bank lowered its fiscal 2025 earnings expectations for AVGO due to “seasonal headwinds,” particularly related to a product transition for Google’s Tensor Processing Unit (TPU), expected to impact Broadcom’s revenue primarily in the first half of the year.

However, this is anticipated to be balanced by new AI and networking contracts, as well as additional content opportunities with Apple (NASDAQ:AAPL), which could lead to an adjusted earnings per share (EPS) of $7.31 by 2026.

Although Broadcom’s shift back to quarterly guidance may bring increased attention to seasonal fluctuations and “lumpy AI shipment,” BofA analysts remain confident in Broadcom’s AI trajectory.

They estimate that AI-driven networking and custom chip growth could bring AI revenue from around 23-24% of Broadcom’s current sales to over 30% by fiscal 2026.

The analysts highlighted Broadcom’s continued strategic positioning in AI, suggesting potential upside from partnerships with customers such as OpenAI, which may further contribute to growth from fiscal 2026 onward.

As AI adoption accelerates, BofA states that Broadcom’s focus on high-performance AI networking solutions—especially complementary to NVIDIA’s upcoming Blackwell architecture—is set to solidify its role in the industry.

With a price target set at $215, BofA notes that Broadcom’s portfolio offers a unique combination of stable enterprise software revenue, mid-teens sales growth, and substantial dividend growth potential.

This article first appeared in Investing.com

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