Broadcom Earnings: Accelerating AI Revenue Drives Our Valuation Up to $1090 From $970

We raise our fair value estimate for shares of wide-moat Broadcom to $1090 from $970, primarily behind our higher forecast for the firm’s artificial intelligence chip sales. Management raised its fiscal 2024 AI revenue target and we have also raised our longer-term growth expectations. Broadcom’s other chip markets are experiencing weakness, but we believe AI will more than offset declines elsewhere this year. VMware sales also appear to be tracking ahead of our prior expectations for fiscal 2024, and we maintain our confidence in management’s ability to largely complete its integration by the end of the year. Nevertheless, Broadcom shares remain overvalued in our view. We believe the current pricing implies a $50 billion AI chip business in five years, compared with our forecast, which is nearing $30 billion. We see our forecast as aggressive but more realistic and advise investors to seek a better entry point.