Key Takeaways
- Broadcom’s fiscal Q3 earnings arrive Wednesday after market close, with analysts anticipating 90% EPS expansion to $3.22 and revenues approaching $29.4 billion.
- Shares have declined 30% since reaching peak levels in June, even though projected earnings expansion hovers around 70% for both the current and upcoming fiscal years.
- The company’s AI semiconductor division is expected to generate $16 billion in Q3, marking a surge exceeding 200% compared to the same period last year.
- Marvell Technology secured an agreement with Google to develop chips for AI infrastructure, potentially limiting Broadcom’s future revenue opportunities.
- Recent regulatory disclosures show Broadcom faces potential exposure of up to $29 billion in lease commitments should data center tenants fail to meet obligations.
Broadcom (AVGO) enters Wednesday’s fiscal third-quarter results announcement with considerable pressure to deliver. Currently priced at $[price], shares have tumbled 30% from their June peak, despite Wall Street’s consensus calling for approximately 70% earnings expansion both this year and next.
Analysts are modeling Q3 revenues around $29.4 billion, representing an 85% year-over-year increase. On the bottom line, adjusted earnings per share are projected at $3.22, translating to 90% annual growth.
The critical metric for investors will be AI semiconductor performance. Following Q2’s impressive 143% surge that brought AI chip sales to $10.8 billion, company guidance points toward approximately $16 billion for the current quarter. This would mark growth exceeding 200% year-over-year and nearly 50% sequentially.
This expansion is largely attributed to Broadcom’s specialized AI accelerators, referred to as XPUs, alongside its Ethernet networking solutions. These technologies enable hyperscale cloud providers to construct massive AI computing infrastructures without complete dependence on standard GPUs.
The company maintains strategic alliances with Meta, OpenAI, Google, and Anthropic. Its collaboration with Meta encompasses development of an advanced 2-nanometer AI processor, while the OpenAI partnership features a proposed 10-gigawatt deployment and the recently unveiled Jalapeño Intelligence Processor.
The stock’s downward trajectory began following last quarter’s results. While Broadcom marginally exceeded estimates, management maintained its $100 billion 2027 AI revenue projection rather than increasing it. The market had anticipated an upward revision, triggering a 13% single-day decline.
Marvell Partnership with Google Sparks Concerns
In August, Google—Broadcom’s largest and most established AI client—announced a partnership with Marvell Technology to engineer supplementary chips for its AI operations. Although Broadcom renewed its TPU chip agreement with Google in April, Marvell’s entry introduces another vendor into the equation. This development potentially constrains Broadcom’s future chip revenue expansion.
The TPU collaboration with Google spans more than ten years, indicating the foundational relationship remains solid. Nevertheless, Marvell’s involvement has intensified investor apprehension ahead of Wednesday’s announcement.
Data Center Lease Exposure Creates Additional Uncertainty
A recent quarterly disclosure highlighted that Broadcom could bear responsibility for as much as $29 billion in lease commitments should data center tenants default. This situation stems from a financing vehicle established by Apollo and Blackstone to fund data center development utilizing Broadcom semiconductors.
Critics have characterized this structure as “circular financing,” questioning the genuine strength of underlying demand. While Broadcom’s potential liability represents only a modest portion of total projected capital deployment, the revelation nonetheless unsettled investors.
On the enterprise software front, VMware continues delivering solid results. Infrastructure Software revenues climbed 9% year-over-year to $7.2 billion in Q2, with management projecting 31% growth to $8.9 billion for Q3, fueled by robust uptake of VMware Cloud Foundation 9.1.
The company has surpassed earnings expectations for 21 straight quarters, averaging an EPS beat of 2.19% across its most recent four reports.
AVGO currently commands a forward price-to-earnings multiple of approximately 18.9 times next year’s estimates, marginally above the S&P 500 average, and carries a Zacks Rank #2 (Buy) rating.
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