Broadcom Q4 Earnings Loom: Buy, or Hold the Stock Ahead of Results?

Broadcom AVGO is set to report its fourth-quarter fiscal 2025 results on Dec. 11.For fourth-quarter fiscal 2025, AVGO expects revenues of $17.4 billion. The Zacks Consensus Estimate for revenues is pegged at $17.5 billion, suggesting growth of 24.5% from the year-ago quarter’s reported figure.The consensus mark for earnings has been unchanged at $1.87 per share over the past 30 days, indicating 31.7% growth from the figure reported in the year-ago quarter.Consensus Estimate Trend Image Source: Zacks Investment Research Broadcom’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 2.82%.   Broadcom Inc. Price and EPS Surprise Broadcom Inc. price-eps-surprise | Broadcom Inc. QuoteLet us see how things have shaped up for AVGO shares prior to this announcement.Factors to Note Prior to Broadcom’s Q4 EarningsBroadcom’s fiscal fourth-quarter performance is expected to have benefited from its expanding AI offerings. AI revenues are expected to grow 66% year over year to $6.2 billion, thanks to strong demand for for custom AI accelerators (XPUs), which are a type of application-specific integrated circuits (ASICs) necessary to train Generative AI models. AVGO expanded its portfolio with the launch of the industry’s first Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem, including residential gateways, enterprise access points and smart mobile clients. Tomahawk 6 - Davisson (TH6-Davisson), the company’s third-generation Co-Packaged Optics Ethernet switch, is now being shipped. TH6-Davisson is specifically designed for the accelerating demands of AI networking, as it delivers an unprecedented 102.4 terabits per second of optically enabled switching capacity.In August, Broadcom announced the Jericho 4 Ethernet fabric router that has the ability to interconnect more than one million XPUs across multiple data centers. In October, the company announced Thor Ultra, the industry’s first 800G AI Ethernet Network Interface Card, capable of interconnecting hundreds of thousands of XPUs to drive trillion-parameter AI workloads. AVGO also announced the industry’s first Wi-Fi 8 silicon solutions for the broadband wireless edge ecosystem, including residential gateways, enterprise access points and smart mobile clients.Broadcom has a rich partner base that includes the likes of OpenAI, Lloyds Banking Group, Walmart, NVIDIA, Canonical, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper and Supermicro, among others. A strong portfolio and rich partner base are expected to drive top-line growth. Broadcom expects semiconductor revenues to jump 24% year over year to $17.4 billion. Infrastructure Software revenues are expected to grow 15% year over year to $6.7 billion. However, Broadcom’s fourth-quarter fiscal 2025 guidance indicates a 70-basis-point sequential decline in gross margin due to a higher mix of lower-margin XPUs. Broadcom expects non-AI semiconductor revenues to grow in the low double digits sequentially to roughly $4.6 billion in the fourth quarter of fiscal 2025. Broadband, server storage and wireless are expected to improve, while enterprise networking is expected to decline sequentially.AVGO Shares Outperform SectorAVGO shares have returned 118% in the trailing 12-month period, outperforming the broader Zacks Computer and Technology sector’s return of 26.9% and the Zacks Electronics - Semiconductors industry’s appreciation of 70.5%. AVGO has outperformed peers, including Cisco Systems CSCO, Arista Networks ANET and Marvell Technology MRVL, in a year’s time. While shares of Cisco Systems and Arista Networks have returned 32.2% and 21.4%, respectively, Marvell Technology shares have dropped 7.6% over the same timeframe.AVGO Stock’s Performance Image Source: Zacks Investment Research The AVGO stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.In terms of the forward 12-month price/earnings (P/E), Broadcom shares are trading at 41.23X, higher than its median of 20.95X, the industry’s 39.29X, the sector’s 29.07X, Cisco’s 18.53X, Marvell’s 28.6X, and Arista Networks’ 39.26X.AVGO Stock’s Valuation Image Source: Zacks Investment Research Strong AI Portfolio Aids Broadcom’s Long-Term ProspectsAVGO’s long-term prospects are expected to benefit from the growing demand for AI infrastructure. Broadcom is benefiting from strong demand for XPUs. AVGO sees massive opportunities in the AI space as specific hyperscalers have started to deploy its XPUs. The company expects accelerated demand for XPUs in the back half of 2026 as hyperscalers focus more on inference, along with frontier model training.Momentum in VMware is driving Infrastructure Software revenues. The launch of VMware Cloud Foundation 9.0, a fully integrated cloud platform that can be deployed by enterprise customers on-prem or carried to the cloud, is noteworthy in this regard. VCF 9 enables enterprises to run any application workload, including AI workloads, on virtual machines and on modern containers, thereby offering an alternative to public cloud.ConclusionBroadcom’s strong portfolio, along with an expanding partner base, reflects solid top-line growth potential over the long run. However, declining gross margin and stretched valuation make the stock a risky bet ahead of fourth-quarter fiscal 2025 results.Broadcom currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a favorable entry point to accumulate the stock. 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(AVGO): Free Stock Analysis Report Arista Networks, Inc. (ANET): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks