Broadcom (AVGO) Revenue From VMWare In Focus As Run Rate From VMware Looks Positive

$Broadcom(AVGO)$ is expected to report its quarterly earnings for the period ending 31 October 2024 on 12 December after market close.

AVGO is expected to report a 51.6% increase in revenue to $14.091 billion from $9.3 billion a year ago. This is higher than the revenue guidance given on 05 September 2024 for the period ending 31 October which is expected for $14 billion.

AVGO is expected to show a rise in quarterly revenue with the consensus estimate for earnings per share to come in at $1.39 per share (+25.2% YoY) on revenue of $14.1 billion (+51.3% YoY).

Quarterly Run Rate From VMware Should Help Contribute To Broadcom (AVGO) Revenue

Broadcom is expected to report a sharp surge in fourth-quarter revenue, as it benefits from strong demand for its custom artificial intelligence chips used by enterprises to process large amounts of data.

With growth being led by AI compute and networking franchises. it is believed that VMware, the cloud computing firm Broadcom bought a little over a year ago, is tracking toward its $4 billion quarterly run rate and $12 billion target for the full fiscal year.

AVGO Stock Falls After Its Last Quarter Earnings

Broadcom's revenue growth benefited from its acquisition of VMware in November 2023.

In after-hours trading on 05 Sep 2024 after earnings AVGO stock dropped 4.8% to 145.55. During the regular session on 05 Sep, AVGO stock sank 0.8% to close at 152.82.

Broadcom's new target of $12 billion in AI chip revenue is an increase from its prior goal last quarter of more than $11 billion this year. Chief Financial Officer Kirsten Spears said Broadcom's revenue excluding VMware grew 4% year over year in fiscal Q3.

But if we were to look closely to Net Income CAGR TTM, where net income compound annual growth rate (CAGR) is a metric that measures the annual growth rate of a company's net profits over a period of time.

The figure of -62.66% is a bit worrying as this is something which would give us an indication on the returns on investing in AVGO.

Broadcom (AVGO) Year-To-Date Return

Broadcom (AVGO) has had a standout year based on its stock chart, up 65% on a total return basis (price change plus dividends) since the start of January.

Something we need to understand is this return have been powered by he AI optimism and could AVGO continue to show the growth moving forward?

Apple First Server Chip WIth Broadcom

Apple is teaming with Broadcom to develop its own artificial intelligence (AI) chip, according to reports, in a move that could reduce Apple's reliance on AI chip giant Nvidia.

The chip, code-named Baltra, is expected to be ready for mass production in 2026. $Apple(AAPL)$ is reportedly working to develop its own artificial intelligence (AI) chips, in a move that could make it less reliant on AI chip giant Nvidia (NVDA).

The chip will reportedly be made using an advanced manufacturing process from $Taiwan Semiconductor Manufacturing(TSM)$, which produces chips for Nvidia and is an Apple supplier. 

So for this news, we will need to see how much is the order size and we could look at TSM and AAPL stock price movement to see if this development does have some competitive advantage for AVGO.

Broadcom (AVGO) Price Target Forecast

Based on 15 Wall Street analysts offering 12 month price targets for Broadcom in the last 3 months. The average price target is $200.00 with a high forecast of $225.00 and a low forecast of $160.00. The average price target represents a 9.17% change from the last price of $183.20.

With the news of Apple new chips development, this could mean a new competitive advantage from AVGO to compete with $NVIDIA Corp(NVDA)$ , but we will need to see if this new chips order size, and will there be possibility of extending this chip to be used in other devices?

Technical Analysis - MACD and Multi-timeframe (MTF)

We can see that the recent surge in AVGO stock price have been triggered by a report that Apple was working with the chipmaker to develop its first server chip tailored for artificial intelligence.

It was trading very near the short-term MA before the news, and though MACD is forming a bullish upside and MTF is giving a strong upward trend,

I would still exercise caution as the last quarter, we saw AVGO beat expectations but the stock price still went down due to their outlook for the year, we need to remember that the Apple first server chip will only go into mass production in 2026.

What would derail AVGO post earnings move would be the revenue contribution from VMware, this could form quite a significant portion.

I will be watching the price action for AVGO closely today (12 Dec) during the normal trading session to see if investors remain optimistic on AVGO earnings.

Summary

We might see semiconductor sector stocks perform better after AVGO earnings, but I would exercise caution as the last quarterly earnings from AVGO send its share price down despite beating expectations.

Considering that semiconductor stock make a recovery yesterday (12 Dec), we might see it taking a retreat while waiting for AVGO earnings. Another semi to watch is TSM.

Appreciate if you could share your thoughts in the comment section whether you think Broadcom would be able to see its share price surge if it beat earnings expectations.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.