J P M O R G A N North America Equity Research 07 December 2025 Broadcom Inc F4Q25 Preview: Expect Beat/Raise On AI Strength; Strong TPU v6 (Ironwood) And AI Networking; Next Gen TPU v7 Set To Ramp Mid CY26; See >$50B AI Revenues Next Year; Reit OW Broadcom is set to report Oct quarter (F4Q25) earnings Thursday, and we continue to see a strong demand profile for its AI products (custom ASICs and networking solutions), gradually improving non-AI semi business (e.g., enterprise, server/ storage, broadband) and ...

Hewlett Packard Enterprise Company (NYSE:HPE) is included among the 11 Best Low Priced Dividend Stocks to Buy According to Analysts. Argus Sees More Upside for HPE, Citing Temporary Server Softness and AI Momentum Photo by nathan dumlao on Unsplash On December 10, Argus bumped its price target on Hewlett Packard Enterprise Company (NYSE:HPE) to $30 from $25 while keeping a Buy rating on the shares. The company missed Wall Street’s revenue estimates in Q4 after an unexpected slowdown in server sales, but ...

Group 1: Market Overview - Analysts believe the AI-led bull market has potential for further growth, supported by catalysts such as the Fed's rate cuts and strong earnings from major companies [1][2] - The current bull market is primarily driven by tech companies with strong profits, indicating that it is not in a bubble phase [1][2] Group 2: Company Insights - Adtran Holdings Inc (NASDAQ:ADTN) is highlighted as a promising small-cap stock, particularly in the rural broadband buildout sector, with expectations of increased investment [6] - Badger Meter Inc (NYSE:BMI) has shown a revenue compound annual growth rate of 14% over the last five years, driven by technological advancements in water metering solutions [8] - Generac Holdings Inc (NYSE:GNRC) is favored for its backup power generation products, with anticipated growth due to increasing demand in data centers [9][10] - ASML Holding NV (NASDAQ:ASML) is recognized as a critical player in the semiconductor industry, providing essential lithography machines for advanced chip fabrication [11][13] - Snowflake Inc (NYSE:SNOW) is positioned as a leader in data infrastructure, benefiting from the integration of AI-driven insights, although caution is advised regarding its long-term evolution [16]

Group 1: AI Market Overview - The semiconductor market is experiencing significant growth, with expectations for the AI chip market to exceed $400 billion by 2030 [1] - Investment is heavily directed towards data centers for artificial intelligence [1] Group 2: Broadcom's Position - Broadcom is positioned as a strong alternative to Nvidia, offering more affordable chips that cater to specific tasks [3] - The company anticipates its AI revenue to grow from $20 billion this year to $120 billion by 2030, indicating a substantial increase in demand [4] - Broadcom's total revenue is currently $60 billion on a trailing-12-month basis [4] Group 3: Revenue Growth and Performance - Broadcom's total revenue grew by 22% year over year last quarter, with AI revenue specifically increasing by 63%, accounting for approximately one-third of the business [5] - The stock has appreciated by 2,500% over the last decade, showcasing a strong track record of operational excellence [6] Group 4: Strategic Focus - Broadcom's specialized AI chips, known as XPUs, and advanced networking solutions are designed to meet the growing demand for intensive compute power [5] - The company's CEO emphasized the importance of networking in AI, stating, "The network becomes the computer," highlighting a shift in focus beyond just the chip [4]

Core Insights - Track Group, Inc. reported Q3 FY25 financial results showing total revenue of $9.1 million, a slight decrease of approximately 1% from $9.2 million in Q3 FY24 [1][5] - The company achieved a gross profit of $4.6 million in Q3 FY25, reflecting an 8% increase from $4.3 million in Q3 FY24 [1][3] - Operating income for Q3 FY25 was $0.8 million, a significant improvement compared to an operating loss of $0.5 million in Q3 FY24 [1][5] - Net income attributable to shareholders in Q3 FY25 was $1.4 million, compared to a net loss of $0.9 million in Q3 FY24 [1][5] Financial Performance - Total revenue for the nine months ended June 30, 2025, was $26.1 million, down approximately 4% from $27.1 million for the same period in FY24 [5] - The decrease in monitoring revenues was primarily due to fewer clients in Virginia and Washington D.C., along with the sale of the Chilean subsidiary [5] - Gross profit for the nine months ended June 30, 2025, was $13.1 million, up from $12.4 million in the same period of FY24 [5] - Adjusted EBITDA for Q3 FY25 reached $1.8 million, a 14% increase from $1.6 million in Q3 FY24 [3][5] Business Outlook - The company is entering the second half of FY25 with positive momentum from strategic initiatives, including technology reinvestments and operational streamlining [4] - The financial results validate the effectiveness of the long-term growth strategy, positioning the company for sustainable growth throughout FY25 [4] - The outlook for FY25 anticipates revenue of approximately $35.5 million [4] Cash Position - Cash balance as of June 30, 2025, was $4.9 million, a 37% increase from $3.6 million at the end of September 2024 [5] - The increase in cash was attributed to higher operating income, reduced vendor payments, and proceeds from the sale of the Chilean subsidiary [5] Shareholder Information - Net income per share for Q3 FY25 was $0.12, compared to a loss of $0.07 in Q3 FY24 [14] - The weighted average shares outstanding remained constant at 11,863,758 for both periods [14]

Industry Overview - The Zacks Wireless Equipment industry is experiencing healthy demand trends due to rapid 5G deployment and upgrades to cloud and fiber network infrastructure [1] - The industry includes companies providing networking solutions, wireless telecom products, and related services for voice and data communications [3] - Key products include integrated circuit devices, system software, two-way radios, satellite telecommunications, and security products [3] Future Trends - Network convergence is a significant trend, with operators combining voice, video, and data communications into a single network, which is expected to reduce service delivery costs and enhance broadband competition [4] - The industry is focused on supporting high user volumes and minimizing performance degradation through scalable solutions [4] Profitability Challenges - Short-term profitability is at risk due to high costs associated with first-generation 5G products, geopolitical tensions, and supply chain disruptions [5] - Elevated customer inventory levels and macroeconomic challenges are additional headwinds affecting profitability [5] Growth Drivers - The demand for advanced wireless products and services is driven by the need for network optimization and the rapid pace of 5G deployment [6] - The expansion of fiber optic networks and the growth of cloud networking solutions are acting as tailwinds for the industry [6] Market Performance - The Zacks Wireless Equipment industry has outperformed the S&P 500 and the broader Zacks Computer and Technology sector, with a growth of 34.9% over the past year compared to 17.2% and 22.8% respectively [10] - The industry currently has a Zacks Industry Rank of 96, placing it in the top 39% of over 250 Zacks industries, indicating positive prospects [8] Valuation Metrics - The industry is trading at a trailing 12-month EV/EBITDA of 25.07X, higher than the S&P 500's 17.85X and the sector's 18.23X [13] Notable Companies - **Ubiquiti Inc. (UI)**: Gained 160.3% over the past year, with strong growth opportunities in both emerging and developed economies [16][20] - **InterDigital Inc. (IDCC)**: Achieved an 87.6% increase in stock price, with a long-term earnings growth expectation of 15% [19][20] - **Clearfield, Inc. (CLFD)**: Gained 12.1% over the past year, benefiting from strong demand in fiber optic products and regional service provider verticals [23]

Core Insights - Appaloosa's David Tepper has significantly reduced or exited positions in 10 high-profile AI stocks over the past year, indicating a shift in investment strategy [1][5][6] - The selling activity may be attributed to profit-taking, as many AI stocks have seen substantial price increases due to strong demand for AI infrastructure [7][8] - Despite the selling trend, Tepper has initiated a position in Broadcom, which is seen as a strategic move given its diverse business model beyond AI [15][18][19] Group 1: Selling Activity - Tepper sold all shares in Advanced Micro Devices (1,630,000 shares), Intel (3,750,000 shares), and reduced stakes in Oracle (1,600,000 shares, 70% reduction) and Microsoft (890,000 shares, 64% reduction) [6][13] - Other notable reductions include Baidu (1,025,000 shares, 57% reduction), Meta Platforms (572,500 shares, 51% reduction), and Nvidia (4,120,000 shares, 93% reduction) [13][12] - The overall trend suggests a cautious approach towards AI stocks, possibly due to concerns over a potential bubble [8][10] Group 2: Market Dynamics - The AI sector has experienced rapid growth, but many companies are not yet generating positive returns on their AI investments, raising concerns about sustainability [8][9] - Regulatory and trade concerns, particularly regarding export restrictions on AI technology to China, may also influence investment decisions [11][12] - Nvidia's growth is heavily reliant on AI-GPUs, making it particularly vulnerable if demand decreases [10][12] Group 3: Broadcom's Position - Broadcom is the only AI-related stock that Tepper has increased his position in, acquiring 130,000 shares [15] - The company provides essential networking solutions for AI data centers, which are critical for optimizing performance [16][18] - Broadcom's diverse business model, including wireless chips and cybersecurity solutions, offers a buffer against potential downturns in the AI market [18][19]

Core Viewpoint - Nvidia is positioned as a leading stock to capitalize on global AI growth, driven by its hardware sales for large language models and its expanding role in the AI ecosystem [1][5]. Group 1: AI Factories and Infrastructure - AI factories, as defined by CEO Jensen Huang, are specialized data centers for developing, training, and deploying AI models at scale, with Nvidia promoting its Blackwell-powered factories globally [3]. - Nvidia's next-generation Rubin platform is set to follow the Blackwell GPU architecture in 2026, indicating ongoing innovation in its offerings [3]. - The company is involved in significant projects worldwide, such as the UAE's Stargate data center and Germany's sovereign AI factory with Deutsche Telekom, highlighting its role in the emerging "intelligence infrastructure" [4]. Group 2: Growth Potential - Nvidia is expected to benefit from the expanding AI infrastructure, with its GPU clusters, software, and networking solutions being integral to many large data centers [4]. - The company's growth trajectory is anticipated to continue, making it a recommended addition to investment portfolios over the next year [5].

Core Insights - Credo Technology Group Holding Ltd (CRDO) is experiencing significant growth, with fiscal 2025 revenues reaching $436.8 million, a 126% year-over-year increase, driven by high demand for energy-efficient connectivity solutions in AI data centers [1][8] - The company anticipates revenues for fiscal 2026 to exceed $800 million, indicating more than 85% year-over-year growth, supported by the transition to 100 gig per lane solutions and increased adoption of Optical DSPs [5][8] Company Performance - In the fourth quarter of fiscal 2025, CRDO's revenues surged 179.7% year-over-year to $170 million, primarily due to strong performance in HiWire Active Electrical Cables and customer momentum in PCIe and Ethernet retimers [1][8] - For the first quarter of fiscal 2026, CRDO projects revenues between $185 million and $195 million, suggesting a 12% increase at the midpoint [5] Product Portfolio - CRDO's focus on low-power, high-bandwidth interconnects, including HiWire AECs, Optical DSPs, and SerDes solutions, positions it well within the AI infrastructure market [2][3] - The company is witnessing growing interest in its PCIe retimers and Ethernet retimers, which are crucial for scale-out networks in AI servers [3] Market Dynamics - The demand for AI infrastructure is driving CRDO's growth, with hyperscaler customers increasingly seeking advanced connectivity solutions [1][5] - Competitors like Marvell Technology and Broadcom are also capitalizing on the AI data center trend, with Marvell's data center revenues increasing by 76% year-over-year and Broadcom projecting a 21% year-over-year revenue increase for the third quarter of fiscal 2025 [6][7] Valuation Metrics - CRDO's shares have surged 209.4% over the past year, significantly outperforming the Electronics-Semiconductors industry's growth of 20.8% [9] - The company is currently trading at a price/book ratio of 25.25, which is higher than the sector's average of 9.62 [10]

Core Viewpoint - The article highlights the potential investment opportunity in Broadcom due to rising AI infrastructure spending and strategic management decisions, particularly in light of the upcoming earnings report and share buyback program [4][10][11]. Industry Summary - The capital markets have shown signs of recovery, with the S&P 500 near breakeven and the Nasdaq down only 3% after a challenging start to the year [2]. - AI companies reported strong financials in Q1 2025, with positive outlooks, benefiting companies like Nvidia and Advanced Micro Devices [3]. - AI infrastructure spending among major cloud providers is projected to exceed $300 billion in 2025, which is a positive indicator for semiconductor companies [5]. Company Summary - Broadcom is positioned well due to its custom silicon offerings, which align with the rising AI capital expenditures from major tech players [5]. - The company exceeded its AI revenue targets in Q1, attributed to increased shipments of networking solutions to hyperscalers [6]. - Broadcom announced a $10 billion share buyback program, which is seen as a strategic move to enhance shareholder value amid positive earnings reports and AI investment trends [10][11]. - The upcoming earnings report on June 5 is anticipated to reflect continued growth in Broadcom's AI business, potentially benefiting from the overall positive sentiment in the market [12][13].