Strong demand for AI drives multi-line growth for Broadcom Inc. (AVGO.US) JP Morgan reiterates "overweight" rating.

JPMorgan released a research report stating that the bank recently held an investor group meeting with the management of Broadcom Inc. (AVGO.US), focusing on the strong trend of demand for artificial intelligence (AI). This not only drove the growth of Broadcom Inc.'s custom AI XPU business, but also fueled strong demand for its high-performance networking product portfolio. In addition, the resurgence of orders highlighted a gradual recovery in non-AI businesses as well as continuous growth in VMware business. The following are the key points of discussion summarized by JP Morgan: 1. AI demand remains strong. Inference workloads bring additional demand, which was not included in the original 2027 Serviceable Addressable Market (SAM) forecast, potentially leaving room for upside (though it is still early in the adoption cycle to make a clear judgment). 2. Strong execution in product technology development. The 2nm 3.5D AI XPU product will be taped out this year, and the team also expects to tape out the first generation AI XPU product this year while establishing partnerships with two potential key customers (Arm/SoftBank and OpenAI). 3. AI computing loads are driving strong network demand. The expansion of networks brings significant unit value enhancement (5-10 times higher than traditional network content value) and provides the company with significant revenue capture opportunities. 4. Non-AI semiconductor business is experiencing a gradual recovery in a "U-shaped" trend. The team currently observes a turning point in orders/bookings, which is expected to drive an upward revision cycle in earnings per share (EPS) next year. 5. The transition to the VMware Cloud Foundation (VCF) platform is expected to continue to drive strong growth in VMware business until at least the end of 2026 or 2027. At that time, VMware's annual revenue is expected to reach $20 billion, and the growth rate will return to a more normal range of mid to high single-digit percentage levels. 6. Despite some margin pressure on the AI XPU business, the overall semiconductor operating margin is expected to continue to expand, thanks to the profitability improvement brought by operating leverage. Over the next 1-2 years, management will focus on the significant growth opportunities brought by AI, increasing reinvestment in the business rather than pursuing acquisitions to avoid resource and attention diversions. Overall, JP Morgan believes that the fundamentals of Broadcom Inc.'s AI are accelerating improvement, while the fundamentals of non-AI semiconductor business are also improving, coupled with further revenue release from VMware, will jointly drive strong revenue and profit growth for the company. Currently, Broadcom Inc. is the world's second-largest AI semiconductor supplier and the world's largest custom chip (ASIC) supplier. The bank reiterated its "overweight" rating on Broadcom Inc., with a target price of $325 for December 2025. This target price represents an approximate 18% upside from Broadcom Inc.'s closing price of $275.4 on July 10th. JP Morgan believes that Broadcom Inc. is a leader in wireless communications, data center networks, AI/deep learning ASIC, storage, infrastructure silicon chips, hardware, and software, covering multiple terminal markets benefiting from positive development trends. Broadcom Inc. is a giant in the technology infrastructure sector, with unparalleled scale and technical capabilities in the industry, consolidating its leadership position in multiple diversified terminal markets. JP Morgan also added that the bank's target price for Broadcom Inc. is 33 times the estimated earnings per share of $9.80 for the fiscal year 2026, a valuation multiple roughly consistent with other AI peers (30 to 35 times).