Morgan Stanley has issued an "Overweight" rating for Broadcom (AVGO, Financial), anticipating a turning point in the growth rate of its custom chip business. Analyst Joseph Moore highlighted that while Broadcom has multiple business lines, its custom ASIC revenue this year will primarily be driven by Google. Although Google is a mature client, growth expectations remain moderate. Two other clients, presumed to be Meta and ByteDance, are also in mass production, but their revenue contributions are expected to be modest this year.
Moore noted that significant growth in ASIC revenue is not anticipated this quarter. However, with five announced clients from the previous quarter and two new potential clients, investor enthusiasm for ASIC's long-term trajectory is high. Moore expressed confidence in the revenue from AI-related custom chips and Ethernet businesses. Despite most AI-related income likely coming from a mature client, his short-term confidence is somewhat tempered.
Moore believes Broadcom has strong long-term opportunities, especially in the network market, which may favor it over companies like Nvidia. Broadcom is set to report its second-quarter earnings on June 5, with analysts expecting revenue of $14.97 billion and earnings per share of $1.57.
