On Thursday, Wells Fargo adjusted its outlook on Broadcom Limited (NASDAQ:AVGO), raising the price target to $1,700 from the previous $1,430. The firm maintained an Equal Weight rating on the stock. The revision follows Broadcom's announcement of strong second-quarter fiscal year 2024 results, driven by artificial intelligence (AI).
Broadcom's performance in the AI semiconductor sector was a key factor, with guidance for AI-related semiconductor revenue exceeding $11 billion in fiscal year 2024. Additionally, the company's forecast for non-AI semiconductor business suggests a 20% year-over-year decline, which the analyst described as potentially too conservative.
The progression of VMware (NYSE:VMW), Inc. (VMware), a company acquired by Broadcom, was also highlighted. The analyst anticipates that VMware could achieve a revenue milestone of $4 billion per quarter by the fourth quarter of fiscal year 2024.
The new price target of $1,700 per share is based on approximately 25 times Wells Fargo's estimated earnings per share (EPS) for Broadcom in fiscal year 2026. This valuation reflects the firm's assessment of Broadcom's growth prospects in the coming years.
Broadcom's solid financial results and optimistic guidance for its AI semiconductor division are significant factors contributing to Wells Fargo's updated price target. The company's strategic moves, including the acquisition of VMware, are expected to bolster its revenue streams and position it for future growth.
In other recent news, Broadcom's earnings and revenue results have been a highlight, with Melius, Truist Securities, Cantor Fitzgerald, and Citi each raising their price targets for the company. This comes on the back of a significant increase in Broadcom's artificial intelligence (AI) revenue, which reached $3.1 billion, a 280% year-over-year increase. The company's fiscal year 2024 AI revenue forecast has also been revised from $10+ billion to $11+ billion.
Broadcom's fiscal year 2024 revenue guidance has been adjusted upwards to $51 billion, anticipating a substantial contribution from its AI segment. The company also announced a 10-for-1 stock split scheduled to take effect later this year, a move expected to increase stock liquidity and accessibility to a wider range of investors.
Despite a forecasted decline in its storage business, Broadcom anticipates a recovery in server storage connectivity in the second half of the year. These recent developments highlight Broadcom's robust growth in key areas, particularly in AI.
Analysts from various firms, including Mizuho, Baird, Rosenblatt Securities, Jefferies, and UBS, have all raised their price targets for the company, reflecting confidence in Broadcom's market position and future prospects. These upgrades and the strong financial performance underscore the positive trajectory for Broadcom, primarily driven by its growing presence in the AI sector.
InvestingPro Insights
Broadcom Limited's (NASDAQ:AVGO) recent achievements and Wells Fargo's upgraded price target are echoed in the current market data and analysis from InvestingPro. With a substantial market capitalization of $693.05 billion, Broadcom stands as a dominant force in the semiconductor industry. Its commitment to shareholder returns is evident in its impressive track record of raising dividends for 14 consecutive years, a detail that aligns with the company's strong financial performance and Wells Fargo's positive outlook.
Analyzing the company's valuation metrics, Broadcom is trading at a high earnings multiple with a P/E ratio of 54.42, which may suggest a premium market valuation reflecting its robust growth prospects and consistent profitability over the last twelve months. The company's revenue growth has been notable as well, with a 12.94% increase over the last twelve months as of Q1 2024, and a substantial quarterly increase of 34.17% in Q1 2024, indicating a strong trajectory that supports the analyst's sales growth anticipation.
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