12:09 PM EDT, 06/13/2024 (MT Newswires) -- Broadcom ( AVGO ) delivered a "strong quarter" as artificial intelligence exceeded expectations and the integration of VMW progressed smoothly despite current challenges in enterprise software, Morgan Stanley said in a note Thursday.

The analysts said that AI semiconductor performance surpassed expectations for both the quarter and the year, although the fiscal year guidance is likely conservative. However, the 35% quarter-over-quarter growth in AI seen in June is expected to slow down.

The cost synergies for VMW are exceeding expectations, consistent with Broadcom's ( AVGO ) track record, and there are no indications of recent strains in enterprise software. The recovery in non-AI semiconductors is expected to be limited in the short term, as predicted, the analysts said.

The analysts said that the one reason they prefer this stock over other AI competitors like NVIDIA ( NVDA ) is that expectations are lower. If companies like Advanced Micro Devices ( AMD ) or Marvell Technology ( MRVL ) grow at the same rate as NVIDIA ( NVDA ) next year, many investors may see it as disappointing, but for Broadcom ( AVGO ), it's likely above what investors expect. The company's focus on custom AI, though not directly competing with NVDA, provides a distinct market position.

The analysts said that they are raising their revenue, gross margin, and earnings per share estimates for 2024 from $52.6 billion, 76.3%, and $50.57 respectively to $54.3 billion, 76.6%, and $51.50. For 2025, their estimates have been adjusted from $61.5 billion, 76.5%, and $61.58 to $62.7 billion, 76.8%, and $62.85.

Morgan Stanley adjusted its price target on Broadcom ( AVGO ) to $1,765 from $1,658 while keeping its overweight rating. Shares rose past 13% in recent trading activity.

Price: 1696.07, Change: +200.56, Percent Change: +13.41