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Financial report preview | Is it a good opportunity to buy Broadcom before the release of its performance?

Zhitong Finance ·  Jun 11 19:09

$Broadcom (AVGO.US)$The financial report for the second quarter of the 2024 fiscal year will be released after the market closes on June 12th. Zacks consensus expectations show that it is expected Q2 revenue will reach 12.04 billion dollars, a year-on-year increase of 37.88%. In addition, the performance of the second fiscal quarter is expected to benefit from Broadcom's expanding portfolio of generative artificial intelligence (AI) products. In the past 30 days, the company's earnings expectations have increased by 0.8% to $10.79 per share, a year-on-year increase of 4.55%. In the past four quarters, Broadcom's profits have consistently exceeded Zacks consensus expectations, with an average profit of over 2.81%.

Furthermore, Zacks forecasts that second-quarter semiconductor solution revenue will be $7.14 billion, a year-on-year increase of 4.8%.

VMware's continued strong bookings are expected to drive revenue growth for Broadcom. The company expects double-digit consecutive growth in this segment for the remainder of the fiscal year.

Strong GenAI product portfolio supports development prospects.

Based on the increasing demand for artificial intelligence infrastructure and the strong deployment of the GenAI product portfolio, Broadcom's long-term prospects are promising. Broadcom's solutions can meet the increasing demand for artificial intelligence workloads and fast networks in datacenters.

Broadcom's third-generation RoCE pipeline, low-latency congestion control, and innovative telemetry capabilities make its latest 400G PCIe Gen5.0 Ethernet adapter an ideal choice for high-bandwidth, high-pressure environments typical of artificial intelligence infrastructure.

Broadcom's Bailly is the world's leading 51.2Tbps co-packaged optical Ethernet switch. The product integrates cutting-edge silicon photonics technology and Broadcom's Strata XGS Tomahawk5 switch chip. Tomahawk5 provides significant performance improvements for artificial intelligence and machine learning infrastructure.

A solid product portfolio helps expand its customer base, including companies such as Alphabet (GOOGL.US) and Meta Platforms (META.US). Broadcom's strong partner foundation, including Microsoft (MSFT.US), is also noteworthy.

Alphabet is one of Broadcom's major customers for specific application integrated circuits (ASICs) designed to support artificial intelligence and machine learning and improve task efficiency. Meta Platforms is also an important customer, using Broadcom's ASICs to develop Metaverse hardware.

Expanding its relationship with Google.

In April of this year, Broadcom announced an expansion of its partnership with Google, focusing on leveraging Google Cloud's VMware workload capabilities to enhance the user experience and simplify operations through GenAI. Since then, Broadcom's relationship with Google has expanded further.

Recently, Broadcom expanded its long-term partnership with Microsoft to support VMware Cloud Foundation subscriptions on Azure VMware Solutions. This provides additional purchasing options for Azure VMware Solutions, which has been sold and operated by Microsoft since 2019.

In the first quarter of FY2024, AI revenue doubled year-on-year to reach $2.3 billion. Broadcom currently expects AI revenue in FY2024 to be around $10 billion, higher than the previous guidance of $7.5 billion, accounting for 35% of semiconductor revenue, which is also higher than the previous guidance of 25%.

In addition, driven by the accelerated deployment of network connections and the expansion of AI accelerators in supercomputers, network business revenue is expected to increase by 35% year-on-year.

Major adverse factors: slow development of broadband and server storage.

It is worth noting that, although the rapid application of GenAI indicates Broadcom's good long-term prospects, the enterprise and telecom terminal markets are expected to remain weak. Telecoms' weak spending is hindering broadband growth, and the sluggish demand for server storage connection solutions is also a cause for concern. In addition, these factors, combined with a challenging macroeconomic environment, are expected to harm Broadcom's revenue growth in the short term.

Additionally, Zacks rates Broadcom's value score as F, representing a currently tight valuation level. Broadcom's current Zacks rank is 3, meaning "neutral," so investors should wait for a better entry point.

In addition, Zacks rates Broadcom's value score as F, indicating a relatively tense current valuation level. Broadcom's current Zacks ranking is 3, meaning 'neutral', so investors should wait for a better entry point.


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