Broadcom Prepares for Q1 Earnings With Strong AI Expectations

Chicago, IL – March 4, 2025 – Zacks.com has released its daily selections of stocks and ETFs highlighted in the Analyst Blog. Zacks Equity Research analysts stay on top of the latest developments affecting stocks and financial markets. Recent features include Broadcom (AVGO), Alphabet (GOOGL), and Meta Platforms (META).

Analyst Blog Highlights

Will You Add Broadcom Stock Before Q1 Earnings This Week?

Broadcom is expected to release its first-quarter fiscal 2025 results on March 6.

Check the latest EPS estimates and surprises on the Zacks Earnings Calendar.

For the first quarter of fiscal 2025, Broadcom anticipates revenues to reach $14.6 billion. The Zacks Consensus Estimate stands at $14.62 billion, suggesting a growth of 22.23% from the previous year’s quarterly figure.

The consensus estimate for earnings remains unchanged at $1.50 per share over the last month, reflecting a growth rate of 22.23% compared to the same quarter last year.

In fact, Broadcom has beaten the Zacks Consensus Estimate for earnings in the last four quarters, with an average earnings surprise of 3.57%.

Let’s examine how AVGO shares have performed leading up to this earnings announcement.

Key Considerations Ahead of Broadcom’s Q1 Earnings

Broadcom’s fiscal first-quarter results are likely to reflect growth due to its expanding artificial intelligence (AI) and GenAI product lines. AI revenues are projected to soar by 65% year-over-year, totaling $3.8 billion. Strong performance in AI connectivity revenue is anticipated as major clients continue deploying Jericho. However, non-AI semiconductor revenues may decline in the mid-teen percentage range year-over-year.

In the upcoming quarter, semiconductor revenues are expected to rise by 10% year-over-year, reaching $8.1 billion. Additionally, Infrastructure Software revenues may grow sequentially by 11% and year-over-year by 41% to $6.5 billion, with VMware’s booking value projected to exceed $3 billion.

The Zacks Consensus Estimate for semiconductor revenues in the fiscal first quarter is at $8.17 billion, indicating an increase of 10.6% year-over-year. Meanwhile, Infrastructure Software revenues are estimated at $6.48 billion, reflecting a growth of 41.8% compared to the prior year.

Strong contributions from VMware are expected to enhance revenue growth. Broadcom’s pivot to a subscription-based model for VMware products likely contributed positively to the expected results for this quarter.

A favorable revenue mix, alongside increased Infrastructure Software and product revenues within the Semiconductor segment, is anticipated to boost the gross margin by 100 basis points sequentially. Broadcom expects an adjusted EBITDA margin of 66% for this reporting period.

AVGO Shares Outperforming the Sector

Over the last 12 months, AVGO shares have delivered a return of 42.2%, outperforming the broader Zacks Computer and Technology sector, which returned 15.1%, as well as the Zacks Electronics – Semiconductors industry’s gain of 15.2%.

Despite this growth, AVGO is considered relatively expensive, as its Value Score of F suggests a potentially stretched valuation at present.

The forward 12-month price/sales ratio for Broadcom is currently at 14.61X, higher than its median of 13.15X and the industry average of 7.45X.

Strong AI Portfolio Supports Long-Term Outlook

Broadcom’s long-term outlook is bolstered by the increasing demand for AI infrastructure and the effective deployment of its GenAI portfolio. A robust lineup of products is attracting key clients, including Alphabet and Meta Platforms. Notable partners like Arista Networks, Dell Technologies, Juniper, and Supermicro are also contributing to its growth trajectory.

The strong demand for Broadcom’s application-specific integrated circuits (ASICs), designed to enhance AI and machine learning efficiency, supports revenue growth. Significant clients such as Alphabet and Meta Platforms utilize Broadcom’s ASICs extensively.

The acquisition of VMware has enriched Broadcom’s Infrastructure software solutions. Since finalizing this acquisition, Broadcom has onboarded more than 4,500 of its largest 10,000 customers to VMware Cloud Foundation, which facilitates the deployment of private cloud environments on-premise.

Broadcom anticipates substantial growth opportunities in the AI sector, as specific hyperscalers are starting to develop their XPUs. Each of the three hyperscalers plans to deploy 1 million XPU clusters across a single fabric by 2027. The Serviceable Addressable Market for XPUs and network solutions is projected to be between $60 billion and $90 billion for fiscal 2027 alone.

Additionally, Broadcom has made commendable progress in debt reduction. The company paid off $2.81 billion in short-term debt during fiscal 2024, with $1.25 billion due in the next year. Broadcom’s robust cash flow generation is expected to support its dividend payouts and facilitate further debt reduction.

Conclusion

Broadcom’s impressive product offerings and an expanding partnership network indicate substantial long-term growth potential. These elements support its current premium valuation.

With a Zacks Rank #2 (Buy), now could be an opportune time to consider adding the Stock ahead of the first-quarter fiscal 2025 results. You may view the comprehensive list of Zacks #1 Rank (Strong Buy) stocks here.

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