Buy, Sell or Hold AVGO Stock: Key Tips Ahead of Q3 Earnings?

Core Insights - Broadcom (AVGO) is expected to report third-quarter fiscal 2025 results on September 4, with projected revenues of $15.8 billion, indicating a 21.1% year-over-year growth [1][10] - The consensus estimate for earnings remains at $1.66 per share, reflecting a 33.9% increase from the previous year [1] Revenue Expectations - AVGO anticipates semiconductor revenues to rise 25% year-over-year to $9.1 billion, while Infrastructure Software revenues are expected to grow 16% year-over-year to $6.7 billion [7] - AI revenues are projected to increase by 60% year-over-year to $5.1 billion, driven by investments from hyperscaler partners [6][10] Business Segment Performance - The company expects sluggishness in server storage, wireless, and industrial businesses, but growth in enterprise networking and broadband [4] - Non-AI semiconductor revenues are expected to remain flat sequentially at around $4 billion [4] Margin and Profitability - Gross margin is anticipated to decline by approximately 130 basis points sequentially, with an adjusted EBITDA margin of 66%, indicating a 70 basis points decline [5] - A higher mix of lower-margin XPUs is expected to keep gross margin under pressure throughout fiscal 2025 [20] Stock Performance - AVGO shares have returned 28.2% year-to-date, outperforming the broader Zacks Computer and Technology sector and the Zacks Electronics - Semiconductors industry [9] - The stock is currently trading at a forward P/E of 37.05, which is higher than its median and industry averages, suggesting a stretched valuation [13] Long-Term Prospects - Broadcom's long-term prospects are bolstered by the growing demand for AI infrastructure and custom AI accelerators [16] - The company sees significant opportunities in the AI space, with plans from hyperscalers to deploy 1 million XPU clusters by 2027 [17] Strategic Developments - Strong results at VMware are expected to contribute to top-line growth, with a focus on shifting VMware products to a subscription-based model [8] - The Jericho4 Ethernet fabric router is a key product that supports the interconnection of over one million XPUs, enhancing Broadcom's networking solutions [19]