What Are Markets Looking For In Broadcom’s Earnings?

As the technology sector garners attention with Broadcom's (NASDAQ: AVGO) upcoming earnings release tomorrow, we take a look at the numbers that markets are expecting, along with a quick glance at future outlook.

For the quarter, EPS is expected to come in at $1.20, with revenues of $12.96 billion. This would mark a continued positive trajectory from the recent report which came in with an earnings per share of $1.10 against revenue of $12.49 billion.

Broadcom has a recent history of beating consensus expectations, with the last 3 quarters each delivering positive surprises on both EPS and revenue. Whether AVGO can continue to beat will be expected to play a part in the price action of the stock post release.

Broadcom’s journey began with Avago's acquisition of Broadcom in 2016, marking the creation of the current corporate entity known as Broadcom. This event was a significant consolidation in the semiconductor industry, creating a powerhouse renowned for its technological prowess. Today, Broadcom has expanded into a conglomerate with 26 divisions across semiconductor and software infrastructure sectors, showcasing the breadth of its reach and influence in the global technology market.

The company's networking business, the largest among its divisions, is poised to capitalize on the ongoing AI buildout. With artificial intelligence gaining traction in numerous applications, Broadcom's critical components for GPU clusters are in high demand, indicating a bullish outlook for this segment. In line with this trend, analysts at Morgan Stanley forecast Broadcom's ASIC revenue, which stands at $3 billion for the fiscal year 2023, to leap to $10 billion by fiscal year 2025.

While the artificial intelligence sector exhibits robust growth, Broadcom's other businesses are navigating through cycles of strength and weakness. The cyclical nature of enterprise and telecommunication spaces has imparted volatility to business performance. Despite these fluctuations, Broadcom's proactive business strategies, including transitioning VMware to a subscription service, signify a commitment to long-term growth. With management projecting double-digit revenue growth for VMware in the next three years, this strategic shift appears promising.

The future for Broadcom may be characterised by significant revenue growth in high-demand sectors like AI, careful management of cyclically sensitive divisions, and a broader pivot towards sustainable business models such as subscription services. For the time being at least, attention is full on earnings.