Broadcom pops as Morgan Stanley expects ASIC growth inflection

Broadcom (NASDAQ:AVGO) shares rose more than 2.5% on Monday as Morgan Stanley said it is expecting the semiconductor company to see an inflection in its growth rate for its custom silicon business.

“While AVGO has multiple irons in the fire, their custom ASIC revenue this year will be mostly driven by Google, a mature customer that we have moderate growth expectations for this year,” analyst Joseph Moore wrote in a note to clients. “There are two other customers shipping in volume today (assumed to be Meta and ByteDance), but we assume revenue contribution will be modest this year. We don’t expect to see significant ASIC upside this quarter, but investor enthusiasm is high for the long-term ASIC trajectory given the five announced customers and two additional prospects announced last quarter.”

Moore, who has an Overweight rating on Broadcom, said he is enthusiastic about Broadcom’s AI revenue from its custom silicon business and its Ethernet business. However, his enthusiasm is tempered in the near-term, given that the majority of its AI-related revenue is likely to be led by a fully penetrated customer.

“We note that this stock feels much more widely owned than other AI names, including Nvidia (NVDA) at this point, which is a bit surprising,” Moore added. “That positioning has us a bit more constructive on NVDA. But AVGO does have very strong opportunities, and the networking market should favor them over NVDA longer term, and we don’t see the same multiple cap on big #s that NVDA feels. We expect this to be a good quarter.”

Broadcom is set to report its second-quarter results after the close on June 5. A consensus of analysts expect the company to earn $1.57 per share on $14.97B in revenue.