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Broadcom AVGO will announce its results for the second quarter of fiscal 2024 on June 12.

The Zacks Consensus Estimate for revenue is $12.04 billion, representing growth of 37.88% from the reported second quarter 2023 numbers.

The consensus earnings mark has increased 0.8% to $10.79 per share over the past 30 days, implying growth of 4.55% from the second quarter of 2023.

Broadcom’s earnings have exceeded the Zacks Consensus Estimate in all of the last four quarters, with the average earnings surprise being 2.81%.

Second-quarter results likely benefited from Broadcom’s growing Generative AI (GenAI) portfolio. In the first quarter of fiscal 2024, AI revenue quadrupled year-over-year to $2.3 billion.

The Zacks Consensus Estimate for Semiconductor Solutions division’s second-quarter revenue is $7.14 billion, representing year-over-year growth of 4.8%.

Broadcom Inc. share price, consensus and EPS surprise

Broadcom Inc. Price, Consensus and EPS SurpriseBroadcom Inc. Price, Consensus and EPS Surprise

Broadcom Inc. Price, Consensus and EPS Surprise

Broadcom Inc. Price Consensus EPS Surprise Chart | Broadcom Inc. Quote

In addition, the continued high order intake at VMware is likely to have led to revenue growth. Broadcom expects double-digit percentage growth over the previous quarter for the remainder of the fiscal year.

Strong AI portfolio strengthens AVGO’s future prospects

AVGO’s long-term prospects are expected to benefit from growing demand for AI infrastructure and robust deployment of its Generative AI (GenAI) portfolio. Broadcom’s solutions are well-positioned to meet the demands of increasing AI workloads and the growing need for fast connectivity in data centers.

With Broadcom’s third-generation RoCE pipeline, low-latency congestion control, and innovative telemetry capabilities, the latest 400G PCIe Gen 5.0 Ethernet adapters are ideal for the bandwidth-intensive and high-use environments typical of AI infrastructures.

Bailly by AVGO is the world’s leading 51.2 terabits per second (Tbps) optical Ethernet switch. This product integrates cutting-edge silicon photonics technology with Broadcom’s StrataXGS Tomahawk 5 switch chip. Tomahawk 5 delivers a significant performance boost for AI and machine learning infrastructure.

A solid portfolio helps expand the customer base, which includes alphabet GOOGL and Meta-platforms META. Broadcom’s strong partner base, including Microsoft MSFT is also notable.

Alphabet is one of Broadcom’s major customers of application-specific integrated chips (ASICs), which are designed to support AI and machine learning and make these tasks more efficient. Meta Platforms has also become a major customer, using AVGO’s ASICs to develop metaverse hardware.

Broadcom expands cooperation with Google

Broadcom and Google’s relationship expanded further in April after the companies announced an expanded partnership focused on leveraging Google Cloud’s capabilities for VMware workloads, improving the user experience, and simplifying operations with GenAI.

Broadcom and Microsoft recently expanded their long-standing partnership with plans to support VMware Cloud Foundation subscriptions on Azure VMware Solution, providing an additional purchasing option for Azure VMware Solution, which has been sold and operated by Microsoft since 2019.

Broadcom now expects AI revenue for fiscal 2024 to be about $10 billion (up from the previous forecast of $7.5 billion) and to account for 35% of semiconductor revenue (up from the previous forecast of 25%).

Network revenues are expected to increase 35% year-on-year, driven by accelerated network connectivity and the expansion of AI accelerators at hyperscalers.

Main headwinds for AVGO: sluggish broadband and server storage

While the rapid adoption of GenAI bodes well for Broadcom’s long-term prospects, we expect weakness in the enterprise and telecom end markets to persist. Sluggish spending by telecom companies is hurting broadband growth. Weak demand for server storage connectivity solutions is a concern.

These factors, together with a difficult macroeconomic environment, are expected to impact Broadcom’s revenue growth in the near term.

In addition, AVGO has a Value Score of F, which reflects the inflated valuation at current levels.

Therefore, investors should wait for a better entry point for Broadcom, which currently has a Zacks Rank of 3 (Hold).

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

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