TLDR
- EU regulators are questioning European cloud companies about their reliance on VMware and ability to switch providers
- A March 31 deadline looms after which some providers could lose the ability to sell VMware subscriptions
- EU antitrust violations can carry fines up to 10% of a company’s annual global revenue
- Piper Sandler upgraded AVGO to “strong buy” with a $460 price target; consensus sits at ~$506
- Broadcom reported Q3 EPS of $3.32 and revenue of $29.59 billion, up 85.5% year over year
Broadcom (AVGO) is trading around $363, up slightly in premarket Friday, but the stock is still well below its 52-week high of $495. The early gain looks tied to broader market strength rather than anything company-specific.
The bigger story right now is regulatory pressure from Europe. EU officials have been asking European cloud companies how much they rely on VMware and whether switching to alternatives is realistic. Regulators are also looking at Broadcom’s certification rules and whether they restrict cloud providers unfairly.
The review has a hard deadline. After March 31, some providers could lose the right to sell VMware subscriptions under Broadcom’s revised partner program. If concerns remain unresolved, the EU could open a formal antitrust investigation or impose temporary measures.
Broadcom overhauled VMware’s licensing model after closing the $61 billion acquisition in 2023. European cloud providers have since complained about contract changes and rising costs. EU antitrust fines can reach 10% of a company’s annual global revenue, which is not a small number for a company of Broadcom’s size.
Analyst Upgrades Keep Coming
Despite the regulatory noise, Wall Street remains largely bullish. Piper Sandler upgraded AVGO to “strong buy” on Wednesday with a $460 price target. Oppenheimer reaffirmed “outperform” with a $535 target. BMO Capital Markets raised its target to $575. KeyCorp kept its “overweight” rating with a $575 target as well.
The consensus sits at around $505.97, well above where the stock is trading now. Of 34 analysts tracked by MarketBeat, 29 have a Buy rating, one has a Strong Buy, and four have a Hold. DA Davidson is the outlier, with a Neutral rating and a $350 target.
The stock opened at $360.83 Wednesday, sitting below both its 50-day SMA of $383 and its 200-day SMA of $378. The MACD remains below its signal line. Resistance is near $376.50, with support around $358.
AI Revenue Is The Core Story
Broadcom posted record AI semiconductor revenue of approximately $16.7 billion last quarter. The company has projected the AI business could generate around $115 billion in fiscal 2027 and $230 billion in fiscal 2028.
Custom AI accelerators and networking products are seeing strong demand from hyperscalers. OpenAI recently selected Broadcom for its first custom AI chip, a move that puts Broadcom deeper into the AI infrastructure supply chain.
Q3 EPS came in at $3.32, beating the $3.22 consensus estimate. Revenue of $29.59 billion topped the $29.24 billion estimate and was up 85.5% from the same quarter last year.
That said, near-term revenue guidance came in softer than Wall Street expected, leading Truist to cut its price target. Insiders also sold around 61,644 shares worth roughly $24 million over the past three months.
Institutional investors hold 76.43% of the stock. Analysts on average expect Broadcom to post $10.36 EPS for the full fiscal year.
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