Wall Street giants sang in groups at AVGO.US (AVGO.US) Damo says its short-term inflection point has now raised its target price to $462

Broadcom (AVGO.US) became the focus of attention on Wall Street on Friday. The tech giant, which spans the software and semiconductor fields, received high praise from many investment banks after announcing the latest financial reports and performance guidelines. However, although it rose for a while after the financial report was released, Broadcom's stock price later rebounded as some investors feared that the company might face pressure on profit margins in the future. As of press release, the stock had plummeted by more than 10% to $365.

Morgan Stanley analyst Joseph Moore said in a report to clients that Broadcom's overall performance this season was “excellent” and that this was the first time in some time that the company showed room for short-term growth. He pointed out that every quarter within the natural year of 2025 is driving up long-term expectations. The number of the company's customers has expanded from the previous 3 to 5, and at the same time, it has given a relatively optimistic target for the size of the serviceable market (SAM) in 2027. Driven by positive developments related to TPU v7, Broadcom's AI-related revenue continued to be higher than expected, although this advantage was partly offset by the weakness of the non-AI semiconductor business.

Moore also pointed out that this quarter's results showed a more obvious short-term inflection point. The company's overall revenue and earnings per share guidance were significantly higher than its previous forecast, while the AI revenue guidance for the January quarter was about 20% higher than its expectations. Based on this performance, Morgan Stanley maintained Broadcom's rating at “Overweight” (Overweight) and raised its target price from $443 to $462.

However, Moore also expressed caution about some details. He pointed out that the high-order customer disclosed in the financial report is Anthropic. The company has placed an order of about 10 billion US dollars with Broadcom and an additional order of about 11 billion US dollars. Related products are based on Google's TPU architecture, and according to statements in the conference call, Anthropic-related sales may require some profits to be transferred to Google; more importantly, this full system rack (full system rack) sales model will significantly reduce Broadcom's overall gross profit margin.

Moore said management has acknowledged that the business's gross margin will be lower than the company average, but no specific figures have been given due to uncertainty. Morgan Stanley temporarily assumes that gross margin is in the mid-40% range, but the actual results may be higher or lower than that level. He also pointed out that this type of order is significantly less than the model of selling acceleration cards to other cloud customers in terms of shipping volume corresponding to unit revenue, thereby increasing the volatility of the performance model. Furthermore, it is still unclear whether the business will be repeatable in 2027, particularly on the question of whether Anthropic will continue to place orders.

The company's management mentioned during the conference call that the AI backlog that can be delivered within the next 18 months is about 73 billion US dollars. To a certain extent, this statement suggests that revenue in the first half of 2027 may face the risk of falling back. However, Moore believes the company is still expected to be supported by new orders during this period. However, with AI revenue exceeding 90 billion US dollars in the next 18 months, there may be relatively limited room for month-on-month growth in the first half of 2027, and the company's statement on the 2027 growth prospects is also slightly more conservative than in the previous earnings conference call.

Jefferies analyst Blayne Curtis also raised Broadcom's target price after the earnings report, and believes the company's AI story continues to expand. He pointed out that Anthropic added an additional order of about 11 billion US dollars in the fourth quarter of fiscal year 2026, and external TPU related business continued to advance. Furthermore, the company signed a fifth unnamed customer this quarter and launched a multi-year customized XPU project. The potential customers may not be OpenAI or be related to Apple. Broadcom revealed that the AI order backlog for the next six quarters is about $73 billion.

Curtis also mentioned that some investors are worried that the above data will not fully reflect the upside of the 2026 fiscal year, but he believes that it is still expected that new orders will continue to be received in the second half of the year. He pointed out that Broadcom's communication strategy has also changed: previously, when its short-term performance was strong, it placed more emphasis on a long-term outlook, but now, as the AI business accelerates, management guidance is more focused on the upcoming quarter.

Wells Fargo analyst Aaron Rakers also said that Broadcom's AI momentum is “accelerating,” and placed special emphasis on the increase in the order backlog mentioned by the company in the 2027 fiscal year related statement. Wells Fargo drastically raised Broadcom's target price from $345 to $410 based on this.