Even Nvidia’s blowout earnings were met with a ho-hum stock reaction
Broadcom Inc. has a high bar to clear Thursday as the chip and software company reports on the progress of its artificial-intelligence initiatives after peer Nvidia Corp. blew away Wall Street expectations last week.
AI could help Broadcom AVGO, +0.26% “overcome softness in traditional networking, broadband, wireless, and storage,” wrote Susquehanna analyst Chris Rolland ahead of the company’s fiscal third-quarter report, which is set to come out after Thursday’s closing bell.
Rolland noted that Chief Executive Hock Tan expects AI revenue to grow to about $7 billion in fiscal 2024, up from about $4 billion, which should include more than $800 million from AI networking sales. Rolland said a big piece of this is from Alphabet Inc.’s GOOG, +1.06% GOOGL, +0.97% Google tensor processing unit, or TPU, and demand is expected to grow.
“That said, Hock expects networking to grow faster, driven by Jericho2 (and eventually Jericho3-AI), as well as Tomahawk5, Ramon3, and co-packaged optics (Bailly),” Rolland said.
He has a positive rating on the stock, and recently raised his price target on Broadcom to $1,010 from $910.
Analysts surveyed by FactSet, on average, expect third-quarter earnings of $10.43 on revenue of $8.85 billion from Broadcom, and $10.95 a share on revenue of $9.27 billion in the fiscal fourth quarter.
Wall Street perhaps shouldn’t be anticipating a big beat-and-raise quarter, however, according to Mizuho desk analyst Jordan Klein. After Nvidia shares NVDA, +0.98% sputtered in the wake of the company’s “massive beat” last week and Marvell Technology Inc.’s stock MRVL, +2.17% dropped following in-line results a day later, there’s “much greater concern and worry around what to expect and how good it needs to be” for a stock to trade higher,” he wrote.
Klein also called out Google TPU as a driver and said that a wireless seasonal uptick into Apple Inc.’s AAPL, +1.92% iPhone launch could be a positive, but he also noted that parts of Broadcom’s enterprise and storage businesses were soft.
Last time around, the company’s bullish outlook fell under scrutiny from analysts, who were concerned that AI may cannibalize other segments of the business.
At the time, CEO Tan had told analysts he expected generative AI models like Microsoft Corp. MSFT, +0.12% -backed OpenAI’s ChatGPT to account for more than a quarter of revenue in fiscal 2024, compared with about 15% currently, and 10% in 2022.
Year to date, Broadcom is up 60% and the PHLX Semiconductor Index SOX, +0.40% is up 44%, while the S&P 500 index SPX is up 18%, and the tech-heavy Nasdaq Composite COMP is up 34% this year.