Semiconductor giant Broadcom (AVGO) isreportedly in talks with tech supergiant Microsoft Corporation (MSFT) to
further bolster its artificial intelligence (AI) chip portfolio. According to a
report by The Information, the two trillion-dollar behemoths are planning to
co-design custom chips to meet growing demand for AI operations, amid a market
fueled by competitive pressure.
This could turn out to be a major tailwindfor Broadcom. Let's take a closer look at the stock ahead of its Q4 results.
About Broadcom Stock
Broadcom is a top global tech firm focusedon semiconductors and infrastructure software for data centers, networking,
broadband, wireless, storage, and industrial sectors. Its headquarters is in
Palo Alto, California, serving as the base for leadership, research, and key
operations in Silicon Valley.
Broadcom creates Ethernet chips, opticaldevices, AI accelerators, Wi-Fi technology, and software through acquisitions
such as VMware. The company has a market capitalization of $1.89 trillion.
Over the past 52 weeks, Broadcom’s stockhas gained 125.99%. Just for comparison, the broader Technology Select Sector
SPDR Fund (XLK) has gained 23.62% over the same period. Factors, such as
strong AI demand, have boosted the stock’s trajectory. Moreover, its 2023
acquisition of VMware has increased software sales, creating another tailwind.
Over the past six months, its shares have surged 65.54%.
Likely due to news of talks with Microsoft,Broadcom’s stock reached a 52-week high of $407.29 on Dec. 8, riding market
momentum. However, it is down 1.5% from that level.
On the other hand, Broadcom currentlytrades at an elevated valuation. Its trailing price-to-earnings ratio is
103.03x, significantly higher than the industry average of 31.52x.
Broadcom’s Q3Results Were Better Than Expected
On Sept. 4, Broadcom announced itsthird-quarter results for fiscal 2025 (the quarter ended Aug. 3). The company
reported record third-quarter revenue of $15.95 billion, up 22% year-over-year
(YOY), driven by robust demand for custom AI accelerators, networking, and
VMware. This was also higher than the $15.83 billion that Wall Street analysts
had expected. Its Q3 AI revenue surged by 63% annually to $5.20 billion.
Also, top line gains were reflected insignificant bottom line improvements. Broadcom’snon-GAAP EPS grew 36% from the prior year’s period to$1.69, surpassing the expected $1.66 figure.
The company’sadjusted EBITDA increased 30% YOY to $10.70 billion, exhibiting substantial
operating leverage. For the fourth quarter of fiscal 2025, Broadcom expects
revenue of approximately $17.40 billion, while adjusted EBITDA is projected to
be 67% of the expected revenue.
Wall Street analysts are considerablyoptimistic about Broadcom’s future earnings. Theyexpect the company’s EPS to increase by 19.2% YOY to$1.49 for the fiscal fourth quarter (which is expected to be reported on Dec.
11 after the market closes). For fiscal 2025, EPS is projected to surge 46.1%
annually to $5.42, followed by a 42.3% growth to $7.71 in the next fiscal year.
What Do Analysts Think About BroadcomStock?
Ahead of its quarterly results, severalWall Street analysts have reiterated their positive sentiments about Broadcom’s prospects. Oppenheimer analyst Rick Schafer raised the stock’s price target from $400 to $435 while maintaining an “Outperform” rating. Schafer cited thecompany’s AI compute/networking franchises as atailwind, with potentially increasing Tomahawk6 volumes as an added boost.
Susquehanna analyst Christopher Rollandmaintained a “Positive” ratingon Broadcom and raised the price target from $400 to $450, citing growing
networking demand driving near-term growth and a broader ASIC customer base
fueling growth in the second half of 2026.
Morgan Stanley (MS) analysts raised thestock price target from $409 to $443 while maintaining an “Overweight” rating, expecting its AIprocessor revenues to grow slightly faster than NVIDIA Corporation’s (NVDA) in 2026.
UBS and Bank of Amercia analysts also seepositive prospects. UBS raised its price target from $415 to $472 and
maintained a “Buy” rating,while BofA increased its price target from $400 to $460 and maintained a “Buy” rating.
Broadcom has long been a popular name onWall Street, with analysts awarding it a consensus “StrongBuy” rating overall. Of the 40 analysts rating thestock, a majority of 34 analysts have given it a “StrongBuy” rating, three analysts rated it “Moderate Buy,” while three analysts areplaying it safe with a “Hold”rating. The consensus price target of $413.14 represents a 1.69% upside from
current levels. The Street-high price target of $535 indicates a 31.68% upside.