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

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

For first-quarter fiscal 2025, AVGO expects revenues of $14.6 billion. The Zacks Consensus Estimate for revenues is pegged at $14.62 billion, suggesting growth of 22.23% from the year-ago quarter’s reported figure.

The consensus mark for earnings has been unchanged at $1.50 per share over the past 30 days, indicating 22.23% growth from the figure reported in the year-ago quarter.

Broadcom’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average earnings surprise being 3.57%.
 

Let us see how things have shaped up for AVGO shares prior to this announcement.

Factors to Note Prior to Broadcom’s Q1 Earnings

Broadcom’s fiscal first-quarter performance is expected to have benefited from its expanding AI and Gen AI offerings. AI revenues are anticipated to jump 65% year over year to $3.8 billion. AI connectivity revenues are likely to be strong in the fiscal first quarter as hyperscalers continue to deploy Jericho. Non-AI semiconductor revenues are expected to decline in the mid-teen percentage on a year-over-year basis.

For the to-be-reported quarter, semiconductor revenues are anticipated to jump 10% year over year to $8.1 billion. Infrastructure Software revenues are expected to grow 11% sequentially and 41% year over year to $6.5 billion. VMware’s annual booking value is expected to surpass $3 billion.

The Zacks Consensus Estimate for fiscal first-quarter Semiconductor Solutions revenues are pegged at $8.17 billion, indicating 10.6% year-over-year growth. The consensus mark for Infrastructure Software revenues is pegged at $6.48 billion, indicating 41.8% year-over-year growth.

Strong results at VMware are expected to have driven top-line growth. Broadcom’s focus on shifting VMware products to a subscription-based model is expected to have driven top-line growth in the to-be-reported quarter. 

A favorable revenue mix, and higher Infrastructure Software and product revenues within the Semiconductor segment are expected to have driven an expansion of 100 basis points in the gross margin on a sequential basis. Broadcom expects an adjusted EBITDA margin of 66% in the to-be-reported quarter.

AVGO Shares Outperform Sector

In the trailing 12 months, AVGO shares have returned 42.2%, outperforming the broader Zacks Computer and Technology sector’s return of 15.1% and the Zacks Electronics - Semiconductors industry’s appreciation of 15.2%.

One-Year Performance

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The AVGO stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.

In terms of the forward 12-month price/sales ratio, Broadcom shares are trading at 14.61X, higher than its median of 13.15X and the industry’s 7.45X.

P/S Ratio (F12M)

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Strong AI Portfolio Aids Broadcom’s Long-Term Prospects

AVGO’s long-term prospects are expected to benefit from the growing demand for AI infrastructure and the robust deployment of the GenAI portfolio. A solid portfolio is helping expand clientele that includes Alphabet GOOGL and Meta Platforms META. Its strong partner base, including Microsoft MSFT, Arista Networks, Dell Technologies, Juniper and Supermicro, has been a key catalyst.

Strong demand for Broadcom’s application-specific integrated chips (ASICs), designed to support AI and machine learning and make these tasks more efficient, aids top-line growth. Alphabet and Meta Platforms are notable users of Broadcom’s ASICs.

The acquisition of VMware has benefited Infrastructure software solutions. Since closing the acquisition, AVGO added more than 4500 of its largest 10,000 customers to VMware Cloud Foundation, which enables enterprises to deploy private cloud environments on-premise.

AVGO sees massive opportunities in the AI space as specific hyperscalers have started to develop their XPUs. Per the company, each of AVGO’s three hyperscalers plans to deploy 1 million XPU clusters across a single fabric by 2027. Serviceable Addressable Market for XPUs and network are expected between $60 billion and $90 billion for fiscal 2027 alone.

Broadcom’s focus on reducing its debt is noteworthy. The company paid off $2.81 billion of short-term debt in fiscal 2024, and $1.25 billion is due within the next 12 months. AVGO’s strong cash flow-generating ability is expected to help the company sustain its dividend payout, as well as lower its debt level simultaneously.

Conclusion

Broadcom’s strong portfolio, along with an expanding partner base, reflects solid top-line growth potential over the long run. We believe that these factors justify the premium valuation.

Broadcom currently has a Zacks Rank #2 (Buy), suggesting that it is the right time to buy the stock ahead of the first-quarter fiscal 2025 results. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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