The bank’s analysts highlighted several key catalysts for their move, including Broadcom’s growth prospects in AI, potential synergies from the VMware acquisition, and recovery in its core enterprise semiconductor businesses. These factors make AVGO a compelling investment compared to other AI-focused stocks.
"We expect Broadcom to easily meet, if not slightly exceed, AI targets," the analysts noted. They believe the company stands to benefit from the deployment of Ethernet in AI data centers, the continued ramp-up of Google's (NASDAQ:The integration of VMware is another crucial element behind Morgan Stanley’s bullish thesis. Analysts believe the integration will help Broadcom cut costs and drive stable cash flows, contributing to double-digit revenue growth over the next three years.
Morgan Stanley also projects a modest recovery in Broadcom's non-AI semiconductor segments, which have faced challenges due to excess inventories in the networking and storage markets. Specifically, it expects a rebound in these segments by CY2025, bolstered by AI growth, which should help Broadcom maintain overall semiconductor revenue growth of 7% year-over-year.
The bull case valuation is $2,156, assuming a better-than-expected semiconductor market recovery and greater VMware synergies, while the bear case valuation is $1,044, reflecting a prolonged semiconductor downturn and integration challenges with VMware.Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors.
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