Broadcom Set to Release Strong Q1 2025 Earnings Results

Broadcom (AVGO) is scheduled to report its first-quarter fiscal 2025 results on March 6.

Find the latest EPS estimates and surprises on Zacks earnings Calendar.

Expected Revenue and Earnings Growth

For the first quarter of fiscal 2025, AVGO aims for revenues of $14.6 billion. The Zacks Consensus Estimate for revenues stands at $14.62 billion, representing a growth of 22.23% from the same quarter last year.

The consensus for earnings remains unchanged at $1.50 per share, signaling a potential 22.23% year-over-year growth as well.

Broadcom’s earnings have exceeded the Zacks Consensus Estimate in each of the last four quarters, averaging an earnings surprise of 3.57%.

Broadcom Inc. Price and EPS Surprise

Broadcom Inc. price-eps-surprise | Broadcom Inc. Quote

Let us see how AVGO shares have performed ahead of this announcement.

Key Factors Influencing Broadcom’s Q1 Earnings

Broadcom’s performance for the first fiscal quarter is likely to benefit from its expanding offerings in AI and Gen AI. Expected AI revenues could soar 65% year-over-year to $3.8 billion. The company anticipates strong AI connectivity revenues in this quarter as hyperscalers increase their use of Jericho. Additionally, non-AI semiconductor revenues are expected to drop in the mid-teen percentage range compared to last year.

For the upcoming report, semiconductor revenues are projected to rise by 10% year-over-year to $8.1 billion, while Infrastructure Software revenues should increase by 11% sequentially and 41% year-over-year to reach $6.5 billion. VMware’s annual booking value is expected to surpass $3 billion.

The Zacks Consensus Estimate for Semiconductor Solutions revenues is set at $8.17 billion, indicating a 10.6% growth year-over-year. The Infrastructure Software revenue consensus is pegged at $6.48 billion, reflecting 41.8% year-over-year growth.

Strong performance in VMware is anticipated to significantly contribute to revenue growth. Broadcom’s strategy to transition VMware products to a subscription model is likely to further support growth in this upcoming quarter.

A favorable revenue mix, coupled with increased Infrastructure Software and product revenues within the Semiconductor segment, is expected to boost gross margins by 100 basis points sequentially. Broadcom forecasts an adjusted EBITDA margin of 66% for this quarter.

AVGO Shares Surpass Sector Performance

Over the past 12 months, AVGO shares have posted a return of 42.2%, significantly outpacing the Zacks Computer and Technology sector’s return of 15.1% and the Zacks Electronics – Semiconductors industry’s gain of 15.2%.

One-Year Performance

Image Source: Zacks Investment Research

Despite this strong performance, the AVGO Stock holds a Value Score of F, indicating a high valuation at the current time.

Broadcom shares are trading at a forward 12-month price/sales ratio of 14.61X, which exceeds both its median of 13.15X and the industry average of 7.45X.

P/S Ratio (F12M)

Image Source: Zacks Investment Research

Long-Term Growth Fueled by AI Portfolio

AVGO’s long-term outlook benefits from increasing demand for AI infrastructure and robust deployments of its GenAI portfolio, enhancing its customer base, which includes Alphabet (GOOGL) and Meta Platforms (META). Its partnerships with industry leaders like Microsoft (MSFT), Arista Networks, Dell Technologies, Juniper, and Supermicro are also significant growth drivers.

Increased demand for Broadcom’s application-specific integrated circuits (ASICs), designed specifically for AI and machine learning efficiency, positively influences revenue. Major clients such as Alphabet and Meta Platforms utilize these ASICs.

The acquisition of VMware has significantly enhanced Broadcom’s Infrastructure Software offerings. Since the acquisition was finalized, AVGO has onboarded over 4,500 of its largest 10,000 customers onto VMware Cloud Foundation, facilitating on-premise private cloud deployments.

Broadcom anticipates vast potential in the AI sector, with specific hyperscalers planning the rollout of their XPUs. The company has estimated that each of its three hyperscaler clients aims to deploy around 1 million XPU clusters by 2027, with a serviceable addressable market for XPUs and networks projected to be between $60 billion and $90 billion by fiscal 2027.

Furthermore, Broadcom’s focus on debt reduction is commendable. The firm diminished $2.81 billion of short-term debt in fiscal 2024, with $1.25 billion set to mature in the next year. AVGO’s strong cash flow is expected to support both its dividend payouts and debt reduction efforts.

Conclusion

Broadcom’s robust product portfolio, expanding partner network, and focus on innovation present strong prospects for long-term revenue growth. These elements justify its current premium valuation.

With a Zacks Rank #2 (Buy), now may be an opportune time to purchase Broadcom shares ahead of the first-quarter fiscal 2025 results. For additional insights, you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks.

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This article originally published on Zacks Investment Research (zacks.com).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.