Earnings Preview | Is it a good time to buy Broadcom before the financial report is released?

According to the Zhitong Finance and Economics APP, Broadcom (AVGO.US) will announce its fiscal second quarter 2024 financial report after the market closes on June 12. Zacks' consensus expectations indicate that Q2 revenue is expected to reach $12.04 billion, a year-on-year increase of 37.88%. Additionally, the second quarter performance is expected to benefit from Broadcom's expanding portfolio of Generative Artificial Intelligence (GenAI) products. In the past 30 days, the company's earnings consensus has increased by 0.8% to $10.79 per share, a 4.55% year-on-year increase. Over the past four quarters, Broadcom's profits have consistently exceeded Zacks' consensus expectations, with an average earnings surprise of over 2.81%.

Furthermore, Zacks' consensus expectations indicate that the second quarter semiconductor solutions revenue is expected to be $7.14 billion, a 4.8% year-on-year increase.

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

Strong AI Product Portfolio Boosts Development Prospects

Based on the increasing market demand for artificial intelligence infrastructure and the strong deployment of the Generative Artificial Intelligence (GenAI) product portfolio, Broadcom's long-term prospects are expected to benefit. Broadcom's solutions can meet the growing demand for artificial intelligence workloads and the need for fast networks in data centers.

Broadcom's third-generation RoCE pipeline, low-latency congestion control, and innovative telemetry capabilities make its latest 400GPCIeGen5.0 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. This product integrates cutting-edge silicon photonics technology and Broadcom's Strata XGS Tomahawk5 switching chip. Tomahawk5 provides significant performance improvements for artificial intelligence and machine learning infrastructure.

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

Alphabet is one of Broadcom's major customers for specific Application-Specific Integrated Circuits (ASICs). These chips are designed to support artificial intelligence and machine learning, enhancing task efficiency. Meta Platforms has also become an important customer, using Broadcom's ASICs to develop Metaverse hardware

The Relationship between Broadcom and Google

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

Recently, Broadcom and Microsoft have also expanded their long-term partnership, planning to support VMware Cloud Foundation subscriptions on Azure VMware solutions. This provides additional purchasing options for Azure VMware solutions, which have been sold and operated by Microsoft since 2019.

In the first quarter of the 2024 fiscal year, artificial intelligence revenue doubled year-on-year, reaching $2.3 billion. Broadcom currently expects artificial intelligence revenue for the 2024 fiscal year 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%.

Meanwhile, driven by accelerated deployment of network connections and the expansion of artificial intelligence accelerators in supercomputers, network business revenue is expected to grow by 35% year-on-year.

Key Adverse Factors: Slow Development in Broadband and Server Storage

It is worth noting that while the rapid application of GenAI indicates a promising long-term outlook for Broadcom, the enterprise and telecommunications terminal markets are expected to remain sluggish. Weak spending by telecommunications companies hinders broadband growth, and the soft demand for server storage connectivity solutions is also concerning.

Combined with a challenging macroeconomic environment, these factors are expected to impair Broadcom's revenue growth in the short term.

In addition, Zacks has assigned Broadcom a value score of F, indicating a relatively tight valuation level. Broadcom's current Zacks rank is 3, meaning "Neutral," so investors should wait for a better entry point