Will Higher Semiconductor Revenues Help AVGO Stock Beat Q1 Earnings?

Broadcom’s AVGO first-quarter fiscal 2026 results, set to be reported on March 4, 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. 

AI revenues jumped 74% year over year to $6.5 billion in the fourth quarter of fiscal 2025. AVGO’s networking portfolio is gaining from strong demand for Tomahawk 6 products, as well as the Jericho 4 Ethernet fabric router. AI revenues are expected to double year over year to $8.2 billion. Broadcom expects semiconductor revenues to jump 50% year over year to $12.3 billion in the first quarter of fiscal 2026. The Zacks Consensus Estimate for Broadcom’s Semiconductor revenues is pegged at $12.11 billion, indicating growth of 47.5% from the figure reported in the year-ago quarter. 

Click here to learn how AVGO’s overall fiscal first-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 first 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.

AVGO expects infrastructure software revenues to be approximately $6.8 billion, up 2% year over year. The Zacks Consensus Estimate for Infrastructure Software revenues is pegged at $7.039 billion, indicating 5% 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 100 basis points (bps) sequentially. Broadcom expects an adjusted EBITDA margin of 67% in the fiscal fourth quarter, suggesting an 80-bps decline on a sequential basis.

The Zacks Consensus Estimate for Semiconductor’s operating income is pegged at $7.084 billion, indicating 50.5% growth from the figure reported in the year-ago quarter. The consensus mark for Infrastructure Software operating income is pegged at $5.408 billion, implying 5.6% growth 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, Seagate STX and Western Digital WDC 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, Seagate and Western Digital is pegged at 19.36%, 38% and 51.1%, respectively. In terms of share price movement, Advanced Energy Industries, Seagate and Western Digital have appreciated 217.9%, 303.4% and 505.1%, respectively, outperforming AVGO’s return of 70% in a year.

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