Broadcom (NASDAQ:AVGO) shares had a very successful 2024, with a strong fiscal fourth-quarter report in December that propelled their market cap past the $1 trillion mark. However, the stock has since tumbled 23% from its December 16 peak amid concerns over valuation and the potential impact of the Trump administration’s policies on tariffs and AI chip export restrictions.
Yet, with the company about to report January quarter (FQ1) results today after the close, can the print help shift sentiment once again?
Evercore’s Mark Lipacis, an analyst who ranks in the top 1% of Wall Street stock experts, is not that sure about that.
On a positive note, says the 5-star analyst, Google’s comments on the demand for its latest TPU are encouraging, and the CapEx commentary from other hyperscalers also point to “positive demand” for the company’s networking equipment.
The fact the stock has not done well recently could also be a plus, and despite its recent underperformance, Lipacis thinks investor sentiment on AVGO remains positive with many viewing the company as the “custom AI chip supplier of choice.”
That is also how Lipacis sees it. “We view AVGO as being unique in that it is one of the few companies that have the capabilities to provide all of the IP, including Logic and Connectivity blocks to deliver a complete, custom-AI chip solution,” he said.
However, Lipacis thinks that after mentioning that three of its customers plan to deploy 1 million node XPU clusters by 2027 – and that Broadcom is competing for those deals – it might be hard for the company to convince investors that its growth will accelerate even more beyond those expectations.
Additionally, its current NTM P/E of 28x is 96% higher than its 10-year median, and Lipacis expects revenue growth to slow down through CY25, making it challenging for the P/E to expand anymore.
As for the raw numbers, Lipacis is calling for revenue of $14.6 billion, the same as the guide, and just below consensus at $14,71 billion. On adj. EPS, Lipacis’ forecast of $1.51 is the same as the Street’s estimate.
“Bottom line,” Lipacis summed up, “we view AVGO as the likely biggest beneficiary of Custom AI solutions longer term, but we think the set-up is balanced heading into its JanQ earnings.”
To this end, Lipacis rates AVGO shares an Outperform (i.e., Buy), while his $267 price target suggests the stock will surge 47% a year from now. (To watch Lipacis’ track record, click here)
Most analysts agree with that thesis; the stock claims a Strong Buy consensus rating, based on 23 Buys vs. 2 Holds. The forecast calls for 12-month returns of ~34%, considering the average price target stands at $243.48. (See AVGO stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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