Will Higher Semiconductor Revenues Help AVGO Stock Beat Q4 Earnings?

Broadcom’s AVGO fourth-quarter fiscal 2025 results, set to be reported on Dec. 11, are expected to reflect the benefits of expanding AI offerings. AVGO’s Semiconductor segment revenues are anticipated to have benefited from strong demand for custom AI accelerators (XPUs), which are a type of application-specific integrated circuits (ASICs) necessary to train Generative AI models. Alphabet and Meta Platforms are notable users of Broadcom’s ASICs. 

AI revenues jumped 63% year over year to $5.2 billion in the third quarter of fiscal 2025. XPUs accounted for 65% of AI revenues. AVGO’s networking portfolio is gaining from strong demand for Tomahawk 5 and 6 products, as well as the Jericho 4 Ethernet fabric router. Tomahawk 6 - Davisson (TH6-Davisson), the company’s third-generation Co-Packaged Optics Ethernet switch, is specifically designed for the accelerating demands of AI networking.

AI revenues are expected to grow 66% year over year to $6.2 billion. Broadcom expects semiconductor revenues to jump 30% year over year to $10.7 billion in the fourth quarter of fiscal 2025. The Zacks Consensus Estimate for Broadcom’s Semiconductor revenues is pegged at $10.774 billion, indicating growth of 31% from the figure reported in the year-ago quarter. 
 

Broadcom Inc. Revenue (TTM)

Broadcom Inc. revenue-ttm | Broadcom Inc. Quote

Click here to learn how AVGO’s overall fiscal fourth-quarter performance is likely to have been.

AVGO’s Infrastructure Software to Benefit From VMware

VMware’s growing traction is expected to have driven the Infrastructure Software segment’s revenue growth in the fiscal fourth quarter. Broadcom’s focus on shifting VMware products to a subscription-based model and growing adoption of VMware Cloud Foundation (VCF), which is anticipated to have aided top-line growth in the to-be-reported quarter.

The launch of VCF 9.0, a fully integrated cloud platform that can be deployed by enterprise customers on-prem or carried to the cloud, is noteworthy in this regard. VCF 9.0 enables enterprises to run any application workload, including AI workloads, on virtual machines and on modern containers, thereby offering an alternative to public cloud.

AVGO expects infrastructure software revenue to be approximately $6.7 billion, up 15% year over year. The Zacks Consensus Estimate for Infrastructure Software revenues is pegged at $6.733 billion, indicating 15.6% year-over-year growth.

Lower-Margin XPUs to Hurt AVGO’s Gross Margin

Although Broadcom has been benefiting from higher sales of XPUs, these lower-margin solutions are expected to impact the gross margin negatively. AVGO forecasts the gross margin to decline 70 basis points (bps) sequentially. Broadcom expects an adjusted EBITDA margin of 67% in the fiscal fourth quarter, suggesting a 10-bps decline on a sequential basis.

The Zacks Consensus Estimate for Semiconductor’s operating income is pegged at $6.101 billion, indicating 32% growth from the figure reported in the year-ago quarter. The consensus mark for Infrastructure Software operating income is pegged at $5.051 billion, implying 20.6% from the figure reported in the year-ago quarter.

Zacks Rank and Stocks to Consider

AVGO currently has a Zacks Rank #3 (Hold). 

Advanced Energy Industries AEIS, Amphenol APH and Digital Turbine APPS are some better-ranked stocks in the broader Zacks Computer and Technology sector. All three stocks currently sport a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Advanced Energy Industries, Amphenol, and Digital Turbine is pegged at 33.41%, 38.67% and 42.42%, respectively. In terms of share price movement, Advanced Energy Industries, Amphenol and Digital Turbine have appreciated 87.8%, 88.5% and 247.3%, respectively, outperforming AVGO’s 121.7% in a year.

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

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