Xiaoma is optimistic that Broadcom (AVGO.US) will continue to lead the AI circuit and maintain the “gain” rating

The Zhitong Finance App learned that the latest research report released by J.P. Morgan (Xiaomo) shows that with its dominant position in the artificial intelligence (AI) ASIC and network semiconductor markets, Broadcom (AVGO.US) is poised to achieve AI business revenue of 19 billion to 20 billion US dollars in fiscal year 2025, an increase of more than 60% over the previous year, in line with the company's three-year service availability market (SAM) compound annual growth rate (CAGR) target of 60% to 65%. As of June 2, 2025, Broadcom's stock price was 248.71 US dollars, and Xiaomo gave a 12-month target price of 250 US dollars, maintaining the “gain” rating.

Broadcom's AI business growth is mainly due to the launch of its next-generation products. For example, Google's TPUv6 3nm ASIC project has begun mass production. Each package contains two 3nm computing chips and eight stacked HBM3e chips, making it one of the most powerful custom AI XPUs in the world. Komo anticipates that this project alone will generate more than $15 billion in total lifetime revenue for Broadcom, and will gradually contribute revenue from the second half of 2025 to the first half of 2026.

In addition, Broadcom also plans to launch the next generation Tomahawk 6 3nm switch chip in the second half of 2025, which will further strengthen its leading position in the high-performance Ethernet switching chip market, which is currently dominated by Broadcom and accounts for more than 80% of the market share. The Tomahawk 6 chip supports 102 Tbps switching throughput and 200 Gbps SERDES, making it currently the highest performing network switching chip in the world.

Broadcom's leading position in the AI ASIC field also benefits from its rich technical reserves and broad customer base. The company has more than 100 cumulative 7nm/5nm/3nm/2nm designs and occupies a leading position in the high-performance switching/routing silicon market. Its customers include Meta, Google, OpenAI, and SoftBank/ARM, and these customers have strong demand for Broadcom's AI ASIC products.

Xiaoma is also optimistic about Broadcom's financial situation. The company expects Broadcom's adjusted earnings per share for fiscal year 2025 to reach $6.78, up 39.4% from $4.86 in fiscal 2024. At the same time, Broadcom's free cash flow generation capacity is strong. Free cash flow is expected to reach US$32.107 billion in fiscal year 2025, up 65.4% from US$19.414 billion in fiscal year 2024.

In terms of valuation, Xiaomo gave Broadcom an “gain” rating and raised the target price from $170 to $250. The target price is based on Broadcom's projected exit operating rate of 31 times the price-earnings ratio of approximately $8.10 per share in fiscal year 2025, reflecting Broadcom's sustainable long-term revenue growth, strong operating model leverage, and steady free cash flow generation capacity.

Despite Broadcom's promising prospects, Komo also pointed out potential risks. Broadcom's products are sold to multiple terminal markets and sold to thousands of customers around the world. If the global economy or any regional terminal market experiences an unexpected negative impact, leading to changes in demand for Broadcom products, Komo may re-evaluate its rating for Broadcom's additional holdings.

Overall, Xiaomo's research report highlights Broadcom's strong strength and growth potential in the AI field. As AI technology continues to develop and apply, Broadcom is expected to continue to benefit from this trend and achieve continued business growth.