Broadcom (AVGO) reports earnings tonight, with results due at 4:15 p.m. Eastern. The setup is hard because the stock now competes against Nvidia (NVDA), which just posted very strong numbers. Even a blowout from Broadcom will be tough to top that, and that weight sits on the stock. On the charts the stock feels heavy, so the near-term view is cautiously optimistic.
Nvidia (NVDA) and Dell (DELL) both confirmed that AI capex spending and revenue growth are still there. Nvidia finally broke its habit of falling after earnings - it dropped in six of the last eight quarters after reporting, and this time the reaction was positive. Broadcom (AVGO) fits the same AI story as a leading chip provider in the AI XPU chip space.
The valuation case
There is a clear gap between Broadcom's earnings growth and its price. The stock has fallen from around $470 to around $370. It grows earnings per share about 60% and trades at 19 times earnings, which points to opportunity. Sales and revenue expectations sit a little below the company's own guidance, so the bar to clear is low.
The market has held back on giving Broadcom a higher multiple because the first quarter disappointed, mostly on guidance - people wanted more.
The number that matters
The key figure tonight is the AI semiconductor number. Broadcom guided to about $16 billion, and consensus sits just a hair below that. Beating $16 billion should push the stock higher. History shows the beat usually has to be significant, not just a small one.
Custom AI demand is very high and still growing, and the tone of the after-hours call - especially how the company frames that custom AI demand - could move the stock up on its own.
Full-year AI revenue
Broadcom has already pointed to more than $100 billion in AI revenue for the fiscal year. Some notes this morning ask for $130 billion to $140 billion. The market is likely not expecting $140 billion. The company needs to confirm the $100 billion and maybe beat it a little in its commentary.
Broadcom has to beat its numbers this quarter and strike a positive tone that confirms the AI trade is still on and demand is still there in the guidance call. If the stock were at $470, expectations would need to be wildly exceeded. At today's lower valuation, just staying positive and topping both consensus and its own guidance gives the stock room to move higher.
Given all the good news already out from Dell (DELL) and Nvidia (NVDA), if forced to pick, I would take Dell and Nvidia over Broadcom (AVGO) at this point.
