Broadcom Rises 13% Post Q3 Earnings: Buy, Sell or Hold the Stock?

Broadcom AVGO shares have risen 13% since the company reported third-quarter fiscal 2025 results on Sept. 4. The company reported non-GAAP earnings of $1.69 per share, beating the Zacks Consensus Estimate by 1.81% and jumping 28% year over year. Revenues rallied 22% year over year to $15.95 billion and beat the Zacks Consensus Estimate by 0.78%.

Strong portfolio and rich partner base are helping drive AVGO’s prospects. Broadcom is benefiting from an expanding portfolio, rich partner base, solid VMware business, strong balance sheet and impressive free cash flow. 

AVGO has outperformed its broader Zacks Computer and Technology sector and peers, including Advanced Micro Devices AMD, Cisco Systems CSCO and Marvell Technology MRVL, year to date (YTD). While AMD and Cisco shares have returned 25.1% and 13% YTD, Marvell Technology shares have dropped 40.5%. The broader sector has returned 15.4%.

AVGO Stock’s Performance

Solid Portfolio, Rich Partner Base to Boost AVGO’s Prospects

Broadcom is benefiting from strong demand for XPUs, which are a type of application-specific integrated circuits (ASICs) necessary to train Generative AI models. They require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. Alphabet and Meta Platforms are notable users of Broadcom’s ASICs.

In the third quarter of fiscal 2025, AI revenues surged 63% year over year to $5.2 billion. XPUs accounted for 65% of AI revenues in the reported quarter. Consolidated backlog hit $110 billion, and the company has secured more than $10 billion of orders for AI racks based on XPU demand. AVGO’s networking portfolio is gaining from strong demand for Tomahawk 5 and 6 products, as well as the Jericho 4 Ethernet fabric router. 

Broadcom’s rich partner base, including NVIDIA, Arista Networks, Alphabet, Dell Technologies, Meta Platform, and Supermicro, has been a key catalyst. These factors are expected to drive strong AI revenues that are expected to grow 66% year over year to $6.2 billion in the fourth quarter of fiscal 2025. 

AVGO expects fourth-quarter fiscal 2025 Semiconductor revenues of $10.7 billion, suggesting 30% year-over-year growth. Infrastructure Software revenues are expected to grow 15% year over year to $6.7 billion.

Strong Liquidity Bodes Well for AVGO

Broadcom benefits from a strong balance sheet and its free cash-flow-generating ability. As of Aug. 3, 2025, cash and cash equivalents were $10.72 billion, and Broadcom generated $7.17 billion in cash flow from operations. Free cash flow was $7.02 billion and accounted for 44% of revenue at the end of the third quarter of fiscal 2025.

The strong balance sheet is helping AVGO lower leverage, pay consistent dividends and return cash to shareholders through buybacks. Broadcom paid $2.8 billion in cash dividends in the fourth quarter of fiscal 2025.

AVGO’s Q3 Gross Margin to Suffer From Unfavorable XPU Mix

Broadcom’s fourth-quarter fiscal 2025 guidance reflects a 70 basis point sequential decline in gross margin due to a higher mix of lower-margin XPUs. A higher mix of lower-margin XPUs in the revenue mix is expected to keep gross margin under pressure throughout fiscal 2025. 

Broadcom expects non-AI semiconductor revenues to grow in the low double digits sequentially to roughly $4.6 billion in the fourth quarter of fiscal 2025. Broadband, server storage and wireless are expected to improve, while enterprise networking is expected to decline sequentially. Sluggish non-AI business remains a headwind, and Broadcom expects to see a U-shaped recovery by mid-2026 or late 2026.

The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $6.61 per share, unchanged over the past 30 days, indicating 35.73% growth over fiscal 2024’s reported figure.

AVGO Shares Trading at a Premium

AVGO stock is trading at a premium, as suggested by the Value Score of F.

In terms of the forward 12-month price/sales, AVGO is trading at 22.01X, higher than the sector’s 6.73X, AMD’s 6.64X, Cisco’s 4.42X and Marvell Technology’s 6.37X.

Price/Sales Ratio (F12M)

Conclusion

Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. These are good reasons to hold the stock for long-term investors.

However, declining gross margin, along with a challenging macroeconomic condition, doesn’t justify the premium valuation.

Broadcom currently carries a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research