MW Why Broadcom's earnings are clicking with investors after Nvidia's fell flat

By Emily Bary

Broadcom is smaller than Nvidia, setting up a compelling growth trajectory. And the company teased new customer wins.

During a bleak stretch for semiconductor earnings, Broadcom Inc. stands out in a good way.

It's not just that Broadcom $(AVGO)$ offered upside with its guidance for the current quarter. Executives at the semiconductor company also sounded positive about the longer-term picture as customer momentum builds.

"Amid AI nervousness management's view of the future is becomingeven more positive," Bernstein analyst Stacy Rasgon said in a note to clients.

See also: Broadcom's stock pops as upbeat earnings outlook soothes AI investors

The company maintained its expectation of a $60 billion to $90 billion serviceable addressable market in AI, which is based on Broadcom's work on application-specific integrated circuits with three existing customers. But Broadcom "also added two new customers to list of their current 'engagements,' so now we know that Broadcom is actively working with SEVEN different potential ASIC customers (3 active and 4 potentially in the works)," Rasgon said.

"And in the meantime execution remains extremely solid, and frankly a breath of fresh air in what has been a very choppy tape," he added.

Read more: Marvell's stock sinks on earnings, showing Wall Street's harsh view of AI plays

Broadcom's stock was up 5% in Friday morning trading, with those gains admittedly below the double-digit ones seen in Thursday's extended session. Mizuho desk-based analyst Jordan Klein wrote that Broadcom "could be the first real AI semi or hardware name to beat, raise and see stock go up."

While Nvidia Corp. $(NVDA)$ also beat expectations with its results and revenue guidance, the company disappointed with its gross-margin outlook, Klein noted. Broadcom didn't have that sort of stain on its report.

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Plus, Broadcom has a compelling profile, he added. The company brings "the unique combo of strong AI [revenue] growth with a long runway for much higher AI rev expansion as it still relatively small" compared with Nvidia. Broadcom is a leader in networking and custom silicon, with a strong reputation and customer base that could set the company up well for the future.

"No one else can really touch them," Klein wrote.

Another factor behind Broadcom's rally Friday may be that the company simply faced a lower bar. "Amid expectations that were not quite as high as some peers, [Broadcom]?delivered solid results and guidance that should continue to bolster this investment thesis," UBS's Timothy Arcuri wrote.

And though investors have punished many AI names so far this year, William Blair's Sebastien Naji saw an upbeat read for the broader sector.

"Broadcom's results support our view that the AI trade remains alive and well as hyperscalers and enterprises continue to view AI as top priority to increase productivity and remain competitive," he wrote.

-Emily Bary

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March 07, 2025 10:13 ET (15:13 GMT)

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