Following the release of its fiscal Q2 2025 earnings, Broadcom (NASDAQ: AVGO) saw a short-term pullback in its share price but received a
unanimous bullish rating from Wall Street analysts.
Although the stock fell as much as 5% on the day of the earnings announcement (June 5) and remains down roughly 3.6% from its
pre-earnings close as of June 20, several analysts have raised their price targets—reflecting strong institutional confidence in the
company’s medium- to long-term growth prospects.
Source: TradingView
Is the Pullback a Buying Opportunity?
As of the June 20 close, Broadcom’s consensus price target stands at $273, implying an upside of nearly 10% from the current share price
of $249.99. However, focusing solely on price targets issued after the company’s latest earnings release, the potential upside widens to
approximately 18%. Notably, analysts raised their targets by an average of 15% following the report—even as the stock fell more than 3% in
the aftermath—highlighting a disconnect between market sentiment and underlying fundamentals, and pointing to a potential investment
opportunity.
It’s worth noting that Broadcom’s stock had reached an all-time high prior to the earnings release, reflecting elevated expectations for
short-term financial performance. Since the company’s revenue and EPS merely met estimates rather than significantly beating them—and
forward guidance came in only modestly ahead of consensus—short-term investors opted to lock in profits. Analysts, however, saw deeper
positives in the company’s fundamentals that extended beyond near-term headline numbers.
AI Becomes the Core Growth Engine
For the second quarter of fiscal 2025 (ended May 4), Broadcom reported revenue of $15.004 billion, up 20% year-over-year and slightly
ahead of market expectations. Net income surged 134% to $4.965 billion, while free cash flow rose 44% to $6.411 billion. The company
returned $7 billion to shareholders during the quarter, underscoring its robust profitability and commitment to capital returns.
Source: Broadcom
The key highlight lies in the explosive growth of its AI-related business. AI semiconductor revenue jumped 46% year-over-year to $4.4
billion, now accounting for more than half of Broadcom’s semiconductor segment. Looking ahead, the company expects total revenue of
$15.8 billion in the third quarter of fiscal 2025—representing a 21% annual increase—with AI chip revenue projected to grow 60% to $5.1
billion. For the full fiscal year, AI revenue is expected to reach $19.5 billion, up 60% from 2024.
AI is becoming a critical growth engine for Broadcom. Unlike Nvidia, which dominates GPU-based AI training, Broadcom is carving out a
leadership position in custom ASICs and Ethernet networking solutions for AI inference and data center connectivity.
Broadcom has collaborated with hyperscale clients like Google and Meta to co-develop custom TPUs and NPUs, positioning its solutions as
viable alternatives to Nvidia GPUs. Some analysts have referred to Broadcom as the "Plan B" for cloud giants looking to reduce dependency
on Nvidia.
Meanwhile, demand is also accelerating for Broadcom’s Tomahawk 6 chips and Ethernet-based AI infrastructure as inference workloads
continue to expand. Tomahawk 6 is already shipping, and the company still has several large hyperscale customers that have yet to fully
ramp up—leaving room for further upside. Additionally, Broadcom is working with four more hyperscalers to develop custom AI chips,
supplementing its existing partnerships with the top three cloud providers.
Non-AI Business Poised for Recovery
In contrast to the explosive growth of its AI business, Broadcom’s non-AI semiconductor segment remains in a cyclical downturn. Revenue
for this segment fell 5% year-over-year to $4 billion in the quarter, dragged down by soft demand in industrial and consumer electronics.
However, management believes this segment has largely bottomed out and expects revenue to stabilize at around $4 billion in the third
quarter, with a gradual recovery projected in the second half of fiscal 2025.
On the software side, Broadcom continues to make progress integrating VMware. Management highlighted that the company’s cloud
services revenue is now growing faster than the industry average, and anticipates that further synergies will be unlocked over time.
Broadcom also plans to launch a new generation of XPUs and networking chips, reinforcing its technology moat.
Source: Broadcom
As for capital returns, Broadcom remains committed to its shareholder-friendly policies. The company expects to return over $20 billion to
shareholders in fiscal 2025 through a combination of dividends and share repurchases.
Potential Supply Chain Risks
It is important to note that the U.S. Department of Commerce has recently proposed revoking the exemptions (VEU) that currently allow
TSMC, Samsung, and SK Hynix to use U.S.-origin equipment in their Chinese manufacturing facilities. This move could pose supply chain
challenges for Broadcom. As a leading chip design company, Broadcom heavily relies on foundries like TSMC for manufacturing.
Restrictions on advanced equipment for these foundries may disrupt the production and delivery schedules of some of Broadcom’s high-end
chips, potentially increasing costs.
Moreover, Samsung and SK Hynix hold dominant positions in the memory chip market. Any limitations on their Chinese factories’ production
could cause memory chip price fluctuations, which in turn may impact demand from downstream sectors such as consumer electronics and
IoT, indirectly affecting Broadcom’s related chip sales.
However, this U.S. policy remains at the proposal stage and has yet to be formally implemented. Opposition voices have already emerged
from the Department of Defense and other agencies, leaving the actual impact uncertain. For now, Wall Street remains more focused on
Broadcom’s leadership in AI chip technologies and the clear growth visibility in its business.
Wall Street Bets on AI’s Long-Term Payoff
Despite short-term weakness in the stock price, Broadcom’s fundamentals continue to improve, with strong growth in its AI business and
positive outlook conveyed during the earnings call.
Analysts have unanimously raised their price targets, with the latest consensus range hovering around $270 to $300, reflecting confidence
that the stock will overcome the near-term pullback and reach new highs. According to TipRanks, driven by Broadcom’s AI leadership and
diversified portfolio, the stock carries a unanimous “buy” rating, with no “sell” ratings.
Notably, JPMorgan raised its price target from $250 to $325, maintaining an “overweight” rating and naming Broadcom a top semiconductor
pick. Their rationale is that Broadcom’s AI revenue will grow 60% by 2026, with free cash flow expected to reach $26 billion in 2025. Cantor
Fitzgerald also raised its price target from $200 to $225, reaffirming a “buy” rating.
Following earnings, the average price target rose by 15%, contrasting sharply with the 3.6% decline in the stock price, indicating a market
mispricing. Analysts attribute this disconnect to earnings that, while solid, did not significantly exceed expectations and the fact that the
stock reached historic highs before earnings, which raised expectations for even stronger performance.
For medium- to long-term investors, Broadcom’s current valuation remains reasonable relative to its growth potential. With the ongoing AI
chip dividend, a potential recovery in non-AI business, and manageable supply chain risks, the stock remains an attractive option through
2025 and beyond.
