12:14 PM EST, 12/13/2024 (MT Newswires) -- Broadcom ( AVGO ) is expected to see strong growth over the next three years amid "surging" artificial intelligence opportunity and the addition of two new major customers, BofA Securities said in a note e-mailed Friday.

Late Thursday, the chipmaker logged stronger-than-expected fiscal fourth-quarter earnings, while its revenue fell short of Wall Street's estimates. Full-year AI revenue skyrocketed to about $12.2 billion from $3.8 billion in fiscal 2023 amid strength in custom AI accelerators or XPUs and networking, Chief Executive Hock Tan said on an earnings conference call, according to a FactSet transcript.

The company sees a "massive" AI opportunity over the next three years, Tan told analysts, adding that it currently has three hyperscale customers. In 2027, each of those customers intends to deploy 1 million XPU clusters across a single fabric. This is expected to represent an AI revenue serviceable addressable market, or SAM, for XPUs and network between $60 billion and $90 billion in that year alone, Tan added.

"To compound this, we have been selected by two additional hyperscalers and are in advanced development for their own next generation AI XPUs," Tan said. "We have line of sight to develop these prospects into revenue-generating customers before 2027, and could therefore expand this SAM significantly."

Broadcom ( AVGO ) shares were up nearly 20% in Friday trade, with its market capitalization exceeding $1 trillion. The stock has jumped 93% so far this year.

BofA sees the company's EPS reaching $11 to $12 by 2027, assuming its AI sales hit $53 billion, though there's room for further EPS upside. Broadcom ( AVGO ) likely has potential to maintain position at iPhone maker Apple ( AAPL ) , compared with the brokerage's previous assumption of "declining content."

For its fiscal first quarter, Broadcom ( AVGO ) expects revenue of $14.6 billion. "Near-term results were in line, though push-out of some software deals from (the fourth quarter) to (the first) helped (the company) guide (the first quarter) in-line versus concerns of missing due to seasonal headwinds," BofA analyst Vivek Arya said in a note to clients.

The brokerage increased its pro forma EPS estimate to $6.27 from $6 for 2025 and to $7.50 from $7.31 for 2026. "Our forecast implies about 15% sales and 20% (pro forma) EPS growth trajectory for the next three years across a diversified base of silicon and infra software," Arya said.

BofA raised its price objective on the Broadcom ( AVGO ) stock to $250 from $215 while reiterating its buy rating.

"(Broadcom ( AVGO )) and its compute/networking peers remain exposed to shifts in investor appetite for AI stocks, with concerns around return on investment and slowing scaling advantages," Arya said, adding that the concerns could increase after 2025.

"While (Broadcom ( AVGO )) dominates custom chips for internal workloads, one can't ignore the stiff competition against Nvidia's ( NVDA ) stronghold in merchant silicon and enterprise customers that helps drives greater share in public cloud," Arya wrote.

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