AVGO Ahead of Q4 Earnings: Buy or Sell the Stock Ahead of Results?

Broadcom AVGO is set to report its fourth-quarter fiscal 2024 results on Dec. 12.

For fourth-quarter fiscal 2024, AVGO expects revenues of approximately $14 billion, suggesting 51% year-over-year growth. 

The Zacks Consensus Estimate for revenues is pegged at $14.06 billion, suggesting growth of 51.29% from the year-ago quarter’s reported figure.

The consensus mark for earnings has been steady at $1.39 per share over the past 30 days, indicating 25.23% growth from the figure reported in the year-ago quarter.

Broadcom’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 3.28%.
 

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

Let’s see how things have shaped up for AVGO shares prior to this announcement:

Factors to Note Prior to AVGO’s Q4 Earnings

Broadcom’s fiscal fourth-quarter results are expected to have benefited from its expanding AI and Gen AI offerings. For the fourth quarter of fiscal 2024, AI revenues are expected to growth 10% sequentially to more than $3.5 billion. 

AVGO expects non-AI revenues to have recovered in the to-be-reported quarter. It expects total networking revenues to grow more than 40% year over year. Server Storage revenues are expected to grow mid to high-single-digit percent sequentially but decline high-single-digit percent year over year.

AVGO expects fourth-quarter fiscal 2024 Semiconductor revenues of roughly $8 billion, up 9% on a year-over-year basis. 

The Zacks Consensus Estimate for fiscal fourth-quarter Semiconductor Solutions revenues are pegged at $7.995 billion, indicating 9.1% year-over-year growth. 

Broadcom’s expanding clientele, which includes the likes of Alphabet GOOGL and Meta Platforms META, is noteworthy. 

Alphabet is one of the large customers of Broadcom’s application-specific integrated chips (ASICs). These chips are designed to support AI and machine learning and make these tasks more efficient. Meta Platforms has also become an important customer as it is using AVGO’s ASICs to develop Metaverse hardware.

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. 

Although rapid GenAI adoption bodes well for Broadcom’s prospects, we expect sluggishness in the enterprise and telecommunication end markets to have hurt broadband growth.

AVGO Shares Outperform Sector YTD

Year to date (YTD), AVGO shares have returned 60.8%, outperforming the broader Zacks Computer & Technology sector’s return of 32.5% and the Zacks Electronics - Semiconductors industry’s gain of 36.8%.

Year-to-Date Performance

Image Source: Zacks Investment Research

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’s shares are trading at 13.8X, higher than its median of 12.03X and the Zacks Electronics - Semiconductors industry’s 6.75X.

P/S Ratio (F12M)

Image Source: Zacks Investment Research

Strong AI Portfolio Aids AVGO’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. Broadcom’s solutions are suitable for addressing the needs of an increasing AI workload and the growing need for fast networking in data centers.

A solid portfolio is helping expand clientele that includes Alphabet and Meta Platforms. Its strong partner base, including Microsoft MSFT, Arista Networks, Dell Technologies, Juniper and Supermicro, has been a key catalyst.

Broadcom now expects fiscal 2024 AI revenues of more than $12 billion (higher than the previous guidance of $11 billion).

The Zacks Consensus Estimate for revenues for fiscal 2024 of $51.58 billion suggests 44.01% growth over fiscal 2023. The consensus estimate for earnings is pegged at $4.83 per share, up by 1 cent over the past 30 days and suggesting 14.18% year-over-year growth.

Conclusion

Broadcom’s strong portfolio, along with an expanding partner base, reflects solid top-line growth potential over the long run. 

However, sluggish broadband and server storage end-markets are concerns, making AVGO a risky stock. 

Broadcom currently has a Zacks Rank #4 (Sell), suggesting that it may be wise to stay away from the stock ahead of the fourth-quarter fiscal 2024 results.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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