Broadcom (NASDAQ:AVGO) recently announced its Q3 earnings for the period ending in July. While the results exceeded expectations, they did not achieve the anticipated blowout. Following the earnings release, the stock initially surged but eventually settled back to pre-earnings levels.
Analysts have been bullish on Broadcom for some time, recognizing the company’s potential for growth, particularly in the AI sector. Despite the impressive returns the stock has generated in recent months, some caution that investors may want to capitalize on the current price levels.
Q3 Results Strengthen Case for Continued Growth
Broadcom delivered a solid performance in Q3, surpassing revenue and profit expectations. The growth was driven by gains in the Semiconductor Solutions and Infrastructure Software segments. However, the company’s revenue forecast fell slightly short of estimates, disappointing some investors.
The demand for AI-related products has helped offset weaker performance in other areas, such as wireless, server and storage, broadband, and industrial segments. Networking products, in particular, have experienced significant growth and are expected to continue this trajectory in the upcoming quarter.
VMware Acquisition on Track for October Completion
Broadcom’s acquisition of VMware has faced regulatory hurdles; however, progress has been made, and the deal is expected to close by the end of October. Approvals have been secured from various regulatory agencies, although clearance from China remains pending.
Outlook and Valuation
Broadcom is well-positioned for mid-single-digit growth, driven by sustained demand for AI-related products. The VMware acquisition is also expected to contribute to the company’s earnings growth in the coming years. However, some analysts question the stock’s valuation, considering the current market conditions and the projected benefits of the VMware deal. The stock’s performance may align with the broader market’s average return rate.
While Broadcom’s CEO, Hock Tan, has a track record of successful capital allocation, investors should exercise caution at current price levels. Trimming positions rather than exiting entirely may be a prudent approach. Nonetheless, if the stock experiences a significant pullback, it may present an opportunity to reconsider adding to one’s position.