Nasdaq 100 outlook: Where next for Broadcom stock ahead of Q2 earnings?

Key takeaways

• Broadcom has outperformed semiconductor rivals in 2023 and recently hit all-time highs
• Still trades at a large discount compared to competitors despite recent rally
• Focus on infrastructure has made it more resilient, and new mega deal with Apple has been welcomed
• Upside potential from AI catalysts as brokers see potential for annual sales to be boosted by billions of dollars
• Risks remain as Broadcom tries to close $61 billion acquisition of VMware by end of 2023

When will Broadcom release Q2 earnings?

Broadcom will release second quarter earnings after markets close on Thursday June 1. A conference call is scheduled on the same day at 1400 PT.

Broadcom Q2 earnings consensus

Revenue is forecast to rise 7.6% from last year to $8.718 billion while adjusted EPS is expected to rise 12% to $10.15, according to consensus numbers from Bloomberg.

Broadcom Q2 earnings preview

Many chipmakers, including titans like AMD, Qualcomm, Micron and yes, even the market’s favourite, NVIDIA, have seen sales decline in recent quarters as the pandemic-fuelled boom in demand for things like games consoles and devices unwinds. Still, we have seen the Philadelphia Semiconductor Index recently hit its highest level in almost 16 months as markets bank on a recovery later this year and get drawn in by the huge prospects attached to the eruption of interest in artificial intelligence.

Meanwhile, Broadcom has proven more resilient. It has not been immune to tougher conditions and this is expected to be the third consecutive quarter of slower sales growth, but Broadcom has continued to expand as companies upgrade networks and broadband infrastructure and the company is also primed to reap rewards from the new work being driven by AI.

This has resulted in Broadcom shares outperforming the wider market after soaring over 45% since the start of 2023, sending the stock to new all-time highs earlier this week. That should draw the eyes of investors considering Broadcom is still trading at a significant discount to its rivals despite the recent rally. Broadcom currently trades at a blended-forward price-to-earnings ratio of 18.8x, according to data from Bloomberg. That compares to the industry average of 29.5x, while the tearaway of the group NVIDIA currently trades at over 50x!

News that Apple has signed-up Broadcom to help develop 5G radio frequency components and other parts to aide wireless technology in a ‘multiyear, multibillion-dollar agreement’ has also provided some support. Broadcom is already a major supplier of hardware to Apple, which is trying to source more American-made parts and less from overseas.

Other Big Tech stocks are also thought to be flocking to Broadcom, and the hottest word on Wall Street right now – Artificial Intelligence – also has the potential to provide some fresh momentum. We already know Broadcom was quick off the mark after launching its new chip back in April named Jericho-3, which is designed to connect supercomputers being used for AI applications.

JPMorgan recently said that primary research indicates that Alphabet’s Google has been placing more orders to Broadcom’s custom chip business as the search engine giant advances its AI processor chip named TPU and integrates them into datacentres as they are upgraded to handle the new breakthrough technology. The broker said orders have increased significantly through to next year and that the recent order acceleration could drive $3 billion-plus in revenue for Broadcom. JPMorgan also said that social media giant Meta could emerge as a major new cloud chip customer that could contribute over $1 billion in annual Broadcom sales over the next two years.

‘The company should be a strong beneficiary of the trends towards more custom chip designs as large cloud titans/OEMs look to drive more performance/power/cost/differentiation alongside their software frameworks,’ said JPMorgan analyst Harlan Sur.

Projections that tech giants could add billions in dollars to Broadcom’s annual revenue is significant and have sparked hopes that Broadcom can follow in the footsteps of NVIDIA, which blew markets away last week when it said AI would lead to sales coming in over 50% higher than what Wall Street had anticipated.

With that in mind, all eyes will be on the outlook to see if AI and other new catalysts are providing any momentum. Keep an eye on whether guidance meets expectations, with markets looking for Broadcom to target $8.757 billion in revenue in the third quarter. Currently, it doesn’t appear that Wall Street has baked-in any new catalysts into Broadcom’s estimates considering markets currently believe the brakes will continue to come down on growth for the remainder of this year, so much so that Wall Street forecasts annual growth in sales and earnings will stall to its slowest pace in three years in the current financial year. That suggests there is upside potential for estimates.

Outside of the financials, there is the pending $61 billion acquisition of cloud computing firm VMware to consider. The deal was announced last year and Broadcom is confident it can close it before the end of 2023, although it is still facing regulatory hurdles. Regulators in the EU, UK and the US are examining the deal over concerns it could negatively impact competition ahead of making decisions later this year. Broadcom has argued the deal improves competition considering giants like Amazon, Microsoft and Google dominate the cloud computing space.

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Broadcom shares popped higher in the wake of NVIDIA’s blowout results last week that provided a huge boost to the wider sector, causing the stock to hit fresh all-time highs on Tuesday.

However, we can see there was a strong intraday reversal as it shot to new highs, creating a bearish shooting star pattern. The long upper wick suggests there was little demand at prices above $835 and that there was a swift change in sentiment, supported by the fact the RSI indicator has been thrusted deep into overbought territory. That suggests Broadcom shares could face more resistance and that there is a risk of the recent rally reversing if it fails to impress with its results, leaving potential for shares to unravel back toward $677.

Broadcom has seen its target price raised by several brokers recently but the average of $722 suggests the recent rally may have been overdone.

The immediate upside target is to reclaim $813 and then to make a sustained move above that $835 in order to set a new closing-high.