Broadcom (AVGO) likely to report strong Q4 results amid AI boom

Over the years, Broadcom, Inc. (NASDAQ: AVGO) has helped customers build and modernize their digital infrastructure through continued innovation. Currently, it is focused on investing in technologies that would enable enterprises to scale generative AI. When the semiconductor company reports fourth-quarter results next week, the market will be closely following the event since it is the first earnings after the VMware acquisition.

Buy AVGO?

The value of Broadcom’s stock more than doubled in the past two years. All along it outperformed the market and became one of the top gainers. Experts forecast a double-digit growth in the next twelve months, which would result in the stock crossing the $1,000 mark. A few weeks ago, AVGO reached an all-time high of $995.71 but lost some momentum since then and is trading sideways ahead of the earnings. While the valuation is relatively high, it is still a good buying option for long-term investors.

The company’s fourth-quarter report is expected to come on December 7, at 4:15 p.m. ET. In the past, Broadcom has delivered better-than-expected quarterly earnings consistently for over three years. For the final three months of 2023, analysts estimate earnings of $10.98 per share, which is higher than the $10.45/share the company earned in the year-ago quarter. Revenues are expected to grow around 5% to $9.41 billion.

AI Push

The tech firm’s network products are in high demand since large customers are scaling and networking their data center AI clusters. Large volumes of Tomahawk-5 switches and Jericho3-AI routers will be shipped over the next six months to big companies that have placed large orders for those products. In the July quarter, the company’s free cash flow came in at $4.6 billion, which is an impressive 52% of total revenues.

From Broadcom’s Q3 2023 earnings call:

“What drives gross margin largely for us as a company is, frankly, product mix. It’s product mix. And, as I mentioned earlier, we have a broad range of products, even as we try to make orders out of it from a viewpoint of communication and segment them or classify them into multiple end markets. Within each end market, you have products, and they all have different gross margins, depending on the — on where they’re used and the criticality and various other aspects.”

In the third quarter, both earnings and the top line beat estimates. At $8.88 billion, revenue was up 5%, while adjusted earnings moved up 8% annually to $10.54 per share. Semiconductor Solutions and Infrastructure Software revenues rose by 5%. The management said it expects full-year revenue to come in around $9.27 billion, which represents around a 4% annual growth.

VMWare Deal

Last month, Broadcom acquired cloud infrastructure company VMware for $69 billion, after obtaining regulatory approval from multiple agencies. It is expected to revolutionize infrastructure technology by combining Broadcom’s engineering skills and VMware’s cloud-centric capabilities. Earlier, the deal had faced major regulatory hurdles including antitrust investigations.

AVGO has constantly traded above its 52-week average since mid-year. On Monday, the stock opened slightly above $930 and traded higher in the early hours.