On Friday, Morgan Stanley (NYSE:MS) maintained its Overweight rating on Broadcom Limited (NASDAQ: NASDAQ:AVGO), while increasing the stock's price target to $233.00 from the previous $180.00. The firm cited Broadcom's solid results and exposure to artificial intelligence (AI) as key factors for the raised target.
The new price target represents a 29% upside from the stock's closing price on Thursday. With a market capitalization of $843.79 billion and trading near its 52-week high, InvestingPro data shows Broadcom currently appears overvalued based on its proprietary Fair Value model.
The analyst from Morgan Stanley expressed optimism about Broadcom's position in the AI sector, noting that the company's expectations are lower than its peers, which could provide an advantage.
The firm's custom silicon business is not as closely tied to the highly competitive general AI (AGI) race, and its ASIC revenue cycles are viewed as more durable compared to peers like Marvell (NASDAQ:MRVL). This durability is attributed to Broadcom's full front-end designs, which are expected to offer some stability despite the presence of competition.
The company's strong position is reflected in its impressive 32% revenue growth over the last twelve months. InvestingPro analysis reveals a "GREAT" overall financial health score, with particularly strong ratings in profit and price momentum metrics.
The decision to raise the price target is based on a multiple of 37 times the model warehouse (MW) estimates for the calendar year 2026, an increase from the previous 34 times MW. The analyst pointed out that this multiple is still at the lower end of the AI cohort, reflecting the slower growth compared to some peers, as well as the significant contribution of profits from enterprise software businesses, which are profitable but grow at a slower pace.
The adjustment in the price target also follows the earnings roll to the calendar year 2026 and takes into account the expansion in peer multiples, especially that of Marvell. The firm's new MW estimate for Broadcom is $6.30 for the calendar year 2026. Morgan Stanley's revised outlook places Broadcom as their second-best AI play, trailing only behind Nvidia (NASDAQ:NVDA), and ahead of other AI equities like AMD (NASDAQ:AMD) and Marvell.
In other recent news, Broadcom Limited has seen a significant increase in its share target from several financial firms, reflecting the company's strong performance and potential growth in the artificial intelligence (AI) sector. Notably, BofA Securities, Evercore ISI, Deutsche Bank (ETR:DBKGn), UBS, and Piper Sandler have all raised their price targets following Broadcom's recent earnings report. The report revealed a beat on the October quarter earnings per share and an upbeat outlook for the January quarter.
Broadcom's AI business, which caters to three current hyperscale customers, has seen substantial revenue growth. The company estimates a serviceable available market (SAM) of approximately $60-90 billion by the fiscal year 2027.
This projection is further bolstered by the acquisition of two additional hyperscale customers for its XPU business, signifying growth opportunities and validation of the increasing demand for custom processing solutions among hyperscalers.
Analysts' outlook suggests a trajectory of approximately 15% sales growth and 20% EPS growth over the next three years for Broadcom. This growth is expected to be supported by a diversified base across both silicon and infrastructure software sectors. The company has demonstrated its commitment to shareholder returns with a 15.22% dividend growth rate over the last twelve months.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.