Buy into Broadcom's AI Growth as VMware Lifts Q2 Earnings?

Reporting results for its fiscal second quarter Thursday evening, Broadcom AVGO was able to surpass its Q2 expectations and offer favorable guidance thanks to its lucrative expansion as a provider of AI networking chips and custom AI accelerators, which are critical to data centers, smartphones, autonomous vehicles, robotics, and edge computing.Helping to lift these innovative technologies, Broadcom’s acquisition of virtualization and cloud computing company VMware has also begun to pay off after acquiring the enterprise IT infrastructure player in 2023 for over $60 billion. Broadcom’s AI Growth   Driven by strong momentum from VMware and demand for its AI semiconductors, Broadcom’s Q2 sales spiked 20% year over year to a record $15 billion, topping estimates of $14.94 billion. Total Q2 semiconductor revenue increased 17% to $8.4 billion. AI semiconductor revenue contributed to more than half of the segment’s revenue at $4.4 billion, a 46% spike and a ninth consecutive quarter of  AI semi growth.Fueling Broadcom’s AI semi growth, custom accelerators revenue grew by double digits, while AI networking revenue soared over +170%.With the integration of VMware helping with its AI infrastructure capabilities, it’s noteworthy that Broadcom also has collaborations with Alphabet GOOGL, Meta Platforms META, Microsoft MSFT, and Amazon AMZN to develop custom AI accelerators that optimize performance and reduce costs. Broadcom’s Impressive Operating Efficiency Continues Notably, Broadcom has now exceeded the Zacks EPS consensus for 17 consecutive quarters and has at least reached earnings expectations in every quarter dating back to November of 2012. Broadcom’s Q2 EPS of $1.58 edged estimates of $1.57 and climbed 43% from $1.10 a share in the comparative quarter.Image Source: Zacks Investment ResearchAlso highlighting Broadcom’s impressive operating efficiency, Q2 consolidated adjusted EBITDA rose 35% to $10 billion, keeping it on track for another record year in this regard after posting an adjusted EBITDA peak of $31.9 billion in 2024.  It’s also noteworthy that Broadcom’s Q2 gross profit of $11.9 billion reflected a 79.4% gross margin, with the chip giant achieving a record gross profit of $39.7 billion last year on a 76.9% gross margin.Image Source: Zacks Investment Research Broadcom’s Elevated Revenue Guidance Most reassuring to the notion that there could be more upside for Broadcom stock was its favorable guidance in a macroeconomic environment where many companies have cited uncertainty and have lowered their outlook.In contrast, Broadcom raised its guidance for its fiscal third quarter, expecting Q3 sales to increase 21% to $15.8 billion from previous projections of $15.6 billion. This also came in above the current Zacks Consensus of $15.73 billion or 20% growth (Current Qtr below).More intriguing, Broadcom now expects AI semiconductor revenue to soar 60% during Q3 to $5.1 billion from previous forecasts of $4.9 billion. Broadcom projects total semiconductor revenue to increase 25% this quarter to approximately $9.1 billion. Additionally, Broadcom expects VMware to propel its infrastructure software revenue by 16% to $6.7 billion.   Image Source: Zacks Investment Research Conclusion & Strategic Thoughts Thanks to the successful integration of VMware, Broadcom’s business operations appear to be firing on all cylinders, especially as it relates to AI growth. Expected to post double-digit top and bottom-line growth in fiscal 2025 and FY26, Broadcom stock currently sports a Zacks Rank #2 (Buy).Furthermore, many strategists have eyed a potential post-earnings selloff as a buying opportunity with Broadcom stock down 5% on Friday on what appears to be profit taking, as AVGO is sitting on more than +200% gains over the last two years.  Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Broadcom Inc. (AVGO): Free Stock Analysis Report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report Meta Platforms, Inc. (META): 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