Morgan Stanley raises Broadcom's target price to $475, expects annual AI-related revenue to increase by 65%

JP Morgan's research report indicates that Broadcom (AVGO.US) significantly outperformed market and buy-side expectations in terms of performance and guidance, aligning with the bank's original expectations, primarily driven by accelerated growth in customized AI chips (XPU) and networking business. The bank expects AI-related semiconductor revenue to grow approximately 65% year-on-year to about $20 billion for the full year, with further growth to at least $55 billion to $60 billion in fiscal year 2026.

In terms of non-AI semiconductor business, revenue growth has started slower than the bank's expectations but shows a stable trend. The bank anticipates that as the recovery momentum in the end market strengthens next year, this business will become another growth point for revenue and gross margin. Regarding profit margins, although the increasing proportion of AI XPU revenue is unfavorable for future gross margins, there remains sufficient leverage in the operating model to support operating profit margins and drive rapid profit growth.

The bank has raised its earnings forecast, increasing the target price from $400 to $475, reiterating the "Overweight" rating, and maintaining Broadcom as the preferred choice in the semiconductor sector