Broadcom Confirmed Its AI Outlook: Stock to Hit New Highs Soon

Key Points

• Broadcom's beat-and-raise quarter affirms the outlook for custom chip demand and long-term growth.
• Robust free cash flow allowed for debt reduction and equity gains to help drive shareholder value.
• Analysts are lifting their price targets and leading this market to a new all-time high. 

Broadcom’s NASDAQ: AVGO 2025 price correction is over. Driven by an aggressive forecast for custom AI chips and concerns about geopolitical and economic headwinds, the FQ1 2025 earnings results were better than expected, compounded by improved guidance that has the market rebounded strongly. Because the upswing in business is tied to the AI upgrade cycle, which is still in its earliest phases, results will likely remain strong in 2025 and drive this market to a new all-time high. 

The analysts’ response to the news is favorable. The first half dozen revisions tracked by MarketBeat include a single price target reduction offset by five increases, and all new price targets equate to a new all-time high. The price target increases put this market in the $260 to $275 range, a 30% to 35% upside from the 150-day EMA in early March. That move could happen quickly.

Broadcom Surges On Beat-and-Raise Report, Confirms Uptrend

Broadcom had a solid quarter in FQ1, with revenue growing nearly 25% to $14.92 billion. The gains were driven by strength in both primary segments and outpaced the consensus estimates by a wide 225 basis point margin. 

Semiconductor Solutions grew by an NVIDIA-like NASDAQ: NVDA 77%, driven by demand for AI, while Infrastructure Software increased by 47%. Other good news includes wider margins aided by revenue leverage and efficiency and record-setting top and bottom line figures. 

The margin news is good. The company delivered leverage results in all comparisons, with critical data such as adjusted earnings and free cash flow rising by 45% and 28%, respectively. Free cash flow came in at 40% of revenue and is expected to remain robust in F2025. 

Guidance is another factor that leads to improved bullish sentiment. The company explicitly stated that AI strength would continue in Q2, driven by hyperscalers like Alphabet NASDAQ: GOOGL, which has committed billions to building advanced data centers to support AI needs.

The guidance for Q2 includes revenue growth near 20%, better-than-expected top-line results, and a high likelihood of being cautious, given the expectation for flat results sequentially. 

Broadcom’s Cash Flow, Balance Sheet Improvement, and Capital Return Drive Shareholder Value

Broadcom’s cash flow allowed for significant balance sheet improvement while investing in growth and returning capital to shareholders. Q1 highlights include flat cash and assets despite debt reduction and reduced liability, ample liquidity, and declining leverage. Total leverage is less than 1.4x equity, equity is up 13% for the quarter, and additional gains are expected as the year progresses.

Regarding capital return, the company doesn't repurchase significant amounts of stock but pays a solid and reliable dividend. It is worth about 1.3% with shares near $200, and the distribution is expected to grow annually. The company has increased for 15 consecutive years and paid less than 40% of Q1 earnings to investors. 

Broadcom Confirms Trend With Post-Release Surge

Broadcom stock surged as much as 10% in premarket trading following the Q1 release. The move shows strong support at a critical level that aligns with a prior market top and uptrend. Because of the indicators, the market will likely continue higher and may set a new all-time high in this scenario. The MACD indicator, in particular, shows strength and convergence with the latest high, a signal that it will be retested or exceeded.