Broadcom's (AVGO) valuation remains "compelling" for investors as its growth continues to be robust, Morgan Stanley said in a Thursday note.

The company posted "impressive" fiscal Q3 results, despite Morgan Stanley's warning that market expectations could limit near-term upside, according to the note.

Revenue from AI-related business in the second half will more than triple from last year, and projections that revenue will double next year are not surprising, the analysts said, noting that this is in line with their own forecast.

Some optimistic investors are anticipating more than $150 billion in AI-related revenue for 2027, but Broadcom has been consistent in being conservative in public statements, guiding to $115 billion in 2027, the analysts said.

The high expectations have caused concern among investors about the company's market share in the tensor processing unit ecosystem.

However, Broadcom is expanding sales beyond TPU-focused customers, with six customers for its XPUs, including four that are classified as "very large," which should ease these concerns.

Morgan Stanley reiterated its overweight rating on Broadcom and raised the price target to $505 from $502.

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