Broadcom (AVGO) preparing to report Q2 earnings. Here’s what to expect

Semiconductor firm Broadcom, Inc. (NASDAQ: AVGO) has been focused on its booming AI chip business lately, which is expected to account for about a fifth of the company’s revenue this year. VMware, which joined the Broadcom fold about six months ago, is also contributing significantly to revenue growth.

Broadcom’s stock climbed to an all-time high in mid-May, after maintaining an uptrend since the beginning of the year. Being one of the most expensive Wall Street stocks, investors often find AVGO unaffordable. However, the current valuation looks favorable from an investment perspective. Long-term investors like the company for its quarterly dividend, which offers a healthy yield of 1.8%, after regular hikes.

Q2 Report Due

The tech firm is scheduled to publish April-quarter results on Wednesday, June 12, at 4:15 pm ET. Continuing the recent trend, adjusted profit is expected to increase to $10.8 per share in Q2 from $10.32 per share last year. The market is looking for revenues of $12.03 billion, sharply higher than the $8.73 billion revenue the company delivered a year earlier.

Broadcom’s Infrastructure Software division, which represents about 38% of total revenues, got a major boost from the acquisition of cloud-computing company VMware. The management expects revenues from VMware to grow by double digits sequentially through the rest of the fiscal year. Meanwhile, the end-user computing division of VMware has been classified as discontinued and will be divested later this year.

Broadcom’s CEO Hock Tan said at the Q1 earnings call, “Revenue from VMware will grow double-digit percentage sequentially, quarter over quarter, through the rest of the fiscal year. This is simply a result of our strategy with VMware. We are focused on upselling customers, particularly those who are already running their compute workloads with vSphere virtualization tools to upgrade to VMware Cloud Foundation, otherwise branded as VCF. VCF is the complete software stack, integrating compute, storage, and networking that virtualizes and modernizes our customers’ data centers.”

Revenue Trend

The company’s bottom line continues to benefit from its attractive pricing strategy. The growing demand for Broadcom’s semiconductor products in AI data centers and AI accelerators at hyperscale customers should continue to drive growth for that segment. Going forward, however, it might face increased competition from Nvidia, which is reportedly building a unit for designing custom chips for cloud computing. Another concern for Broadcom is the relatively weak performance of the other areas of the business.

In the first quarter, revenues rose to $11.96 billion from $8.92 billion in the prior-year period and came in above analysts’ forecast. Adjusted earnings were $10.99 per share in the January quarter, compared to $10.33 per share in Q1 2023. Unadjusted profit declined sharply to $1.33 billion or $2.84 per share from $3.77 billion or $8.80 per share a year earlier. January-quarter numbers topped expectations, as they did in every quarter in the past four years. The management recently said it expects fiscal 2024 revenues to be around $50 billion.

AVGO has traded above its 52-week average price over the past five months. The stock opened Tuesday’s session slightly above $1,320 and traded lower in the early hours.