Broadcom(US:AVGO)2025-07-11 01:05Investment Rating - The investment rating for Broadcom Inc is Overweight (OW) with a price target of $325.00 by December 2025 [2][17]. Core Insights - Strong AI demand is driving growth in Broadcom's custom AI XPU business and high-performance networking portfolio, with incremental demand from inference workloads not previously accounted for in forecasts [1][13]. - The non-AI semiconductor business is showing signs of recovery, which could lead to positive EPS revisions next year [1][15]. - VMware's revenue growth is expected to be sustained until late 2026/2027, with an anticipated annualized revenue base of $20 billion [1][15]. - Semiconductor operating margins are expected to expand due to operating leverage, despite potential gross margin headwinds from the AI XPU business [1][15]. - Broadcom is focusing on reinvesting in AI growth opportunities rather than pursuing M&A, which could dilute resources [1][15]. Summary by Sections AI Demand and Product Development - AI demand remains strong, particularly in inference workloads, which could lead to upside in previous forecasts [1][13]. - The company is on track to tape-out first-generation AI XPU products this year, collaborating with leading prospects like Arm/Softbank and OpenAI [1][13]. - AI compute workloads are driving significant networking demand, presenting opportunities for higher dollar content capture in scale-up networking [1][13]. Non-AI Business Recovery - A gradual "U" shape recovery is observed in the non-AI semiconductor business, reflected in increasing bookings and orders [1][15]. - This recovery could contribute to a positive EPS revision cycle next year [1][15]. VMware Business Growth - The VMware VCF platform is expected to sustain strong revenue growth until late 2026/2027, with projected annualized revenues reaching approximately $20 billion [1][15]. Financial Performance and Margins - Semiconductor operating margins are anticipated to continue expanding due to strong operating leverage, despite lower gross margins from AI XPU demand [1][15]. - AI revenues are projected to grow at 60% year-over-year in FY26, with operating expenses not expected to grow at the same elevated levels [1][15]. Strategic Focus - The company plans to reinvest in business growth over the next 1-2 years, focusing on AI opportunities and customer engagement rather than M&A [1][15].