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Key Morningstar Metrics for Broadcom
What We Thought of Broadcom’s Earnings
Broadcom AVGO reported October-quarter revenue of USD 14.1 billion, up 8% sequentially. In the longer term, management also estimated its serviceable addressable market for artificial intelligence chips at its three largest customers to be USD 60 billion- USD 90 billion in fiscal 2027.
The bottom line: We’ve raised our fair value estimate for Broadcom to USD 190 per share from USD 155 as we raise our AI revenue growth forecast. We now see shares as roughly fairly valued after a 15% jump after hours in response to strong results and guidance.
We now forecast nearly 40% annual revenue growth for Broadcom’s AI chips through fiscal 2029, including more than 50% annual growth through fiscal 2027. This puts us on the conservative end of management’s SAM. We model USD 44.2 billion in AI chip revenue in fiscal 2027.To buy Broadcom shares today, we think investors must believe in the midpoint or upper end of management’s SAM and expect Broadcom to retain a 70% share of this opportunity.
Why it matters: Broadcom’s SAM estimate for fiscal 2027 implies significantly higher AI revenue growth over the next three years than we expected, at a roughly 62% annual rate from fiscal 2024.
We believe Broadcom has a path to a majority share of this future SAM. Management estimates its fiscal 2024 SAM to be between USD 15 billion and USD 20 billion, which implies Broadcom holds a roughly 70% share with USD 12.2 billion in fiscal 2024 AI chip revenue.We see potential upside to management’s SAM, given Broadcom has just begun working with two more custom AI accelerator customers (who we believe to be Apple AAPL and OpenAI) and sells its merchant networking chips for AI to a wider customer base.
Big picture: Broadcom’s impressive outlook for AI revenue adheres to our long-term thesis that the firm possesses differentiated chip design capabilities for high-performance networking and computing that allow it to capitalize on significant cloud investment and take market share.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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