Broadcom (AVGO) delivered "very strong" fiscal Q2 results, and its outlook is likely to remain "conservative" despite continued strength in artificial intelligence-driven growth, Morgan Stanley said in a note Thursday.
The bank said the company's AI business grew 30% in April and accelerated to 200% year-over-year growth in July, representing roughly 40% sequential growth. Guidance for about $56 billion of AI revenue this year and "well above" $100 billion next year is impressive and broadly in line with consensus expectations.
"Further, we think there is upside - the doubling half-over-half implies upside to H2, and the current 'growth trajectory continues' points to higher growth," the firm said, adding that, during the group callback, Broadcom indicated that its outlook for 2027 has improved. However, management declined to provide more specific guidance. The company also suggested that strong growth could extend well into 2028.
The bank said that for Broadcom's fiscal 2026, it now forecasts revenue of $106 billion, non-GAAP gross margin of 74.8%, and earnings per share of $11.59, compared with its prior estimates of $105 billion, 74.9%, and $11.42. For fiscal 2027, it projects revenue of $167 billion, non-GAAP gross margin of 70.8%, and EPS of $18.28, versus its prior estimates of $168 billion, 71%, and $17.97.
Morgan Stanley raised its price target on Broadcom from $485 to $502 while keeping its overweight rating.
Shares of the company fell nearly 15% in the session.
Price: $408.52, Change: $-70.71, Percent Change: -14.75%