Why is Broadcom Inc. (AVGO) up 1.6% since its last earnings report?

It’s been about a month since the last earnings report for Broadcom Inc. (AVGO). Shares are up about 1.6% in that time, underperforming the S&P 500.

Will the recent positive trend continue into its next earnings release, or is Broadcom Inc. headed for a pullback? Before we dive into how investors and analysts have reacted recently, let’s take a quick look at the latest earnings report to better understand the important factors.

Broadcom’s Q2 earnings beat estimates, revenues rise YoY

Broadcom reported net income (non-GAAP) for the second quarter of fiscal 2024 at $10.96 per share, representing an increase of 1.58% compared to the Zacks Consensus Estimate and an increase of 6.2% year-over-year.

Net revenues rose 43% year over year to $12.48 billion, surpassing the Zacks Consensus Estimate by 3.71%. The increase was attributable to VMware, which generated $2.7 billion in revenue during the second quarter, compared to $2.1 billion in the previous quarter.

AI-related revenue increased 280% year-over-year to $3.1 billion, which was also a key driver of overall revenue growth.

Details about the most important products

Semiconductor Solutions revenues (58% of net revenues) totaled $7.2 billion, up 6% year over year and topping the Zacks Consensus Estimate by 0.77%, driven by strong traction among hyperscale technology companies.

Networking revenue of $3.8 billion increased 44% year over year and contributed 53% to Broadcom’s semiconductor revenue. The company saw strong demand for its custom AI accelerators, network switches, routers and network interface cards from hyperscale customers.

Storage connectivity revenue of $824 million contributed 11% to semiconductor revenue, down 27% year over year.

Broadband revenue fell 39% year over year to $730 million and contributed 10% to semiconductor revenue. Wireless revenue of $1.6 billion contributed 22% to semiconductor revenue and increased 2% year over year.

Industrial sales revenue of $234 million was down 10% year over year.

Infrastructure software revenue (42% of net revenue) increased 175% year over year to $5.3 billion.

Software bookings increased from $1.9 billion in the first fiscal quarter to $2.8 billion in the second fiscal quarter, reflecting strong customer engagement and future revenue streams.

Operational details

Non-GAAP gross margin was unchanged year-over-year at 76%.

R&D expenses as a share of net revenue increased 130 basis points year-over-year to 12.3%. SG&A expenses increased 400 basis points to 6.7%.

Adjusted EBITDA increased 31% year-over-year to $7.4 billion. Adjusted EBITDA margin decreased 560 bps year-over-year to 59.5%.

Non-GAAP operating margin declined 470 basis points year over year to 57.2%.

Balance sheet and cash flow

As of May 5, 2024, cash and cash equivalents amounted to USD 9.8 billion, while as of February 4, 2024, it amounted to USD 11.87 billion.

Total debt (including the current portion of $2.42 billion) was $74 billion as of May 5, 2024, compared with $76 billion as of February 4, 2024.

Broadcom generated $4.58 billion in cash flow from operating activities, compared to $4.81 billion in the prior-year quarter. Free cash flow was $4.44 billion, compared to $4.69 billion in the prior-year quarter.

AVGO declared a quarterly dividend of $5.25 per share for the second quarter of fiscal 2024.

On March 29, 2024, the Company paid a cash dividend of $5.25 per common share, for a total of $2.44 billion.

Conductivity

For fiscal 2024, the company expects revenue of $51 billion, including VMware revenue, an increase of 42% over prior-year levels.

Adjusted EBITDA is expected to be 61% of forecast revenue.

AI revenues are expected to grow to more than $11 billion.

How have estimates changed since then?

Over the past month, investors have witnessed an upward trend in estimate revisions.

VGM Results

Broadcom Inc. currently has a weak Growth Score of D, but its Momentum Score is much better at A. Nevertheless, the stock is rated F on the Value side, which puts it in the bottom 20% quintile for this investment strategy.

Overall, the stock has a Composite VGM Score of D. If you’re not focused on a single strategy, this rating should interest you.

Perspectives

The stock’s estimates are generally trending higher, and the magnitude of these revisions looks promising. Interestingly, Broadcom Inc. has a Zacks Rank #3 (Hold). We expect the stock to deliver consistent returns over the next few months.

Industry Player Performance

Broadcom Inc. belongs to the Zacks Electronics – Semiconductors industry. Another stock from the same industry, Ambarella (AMBA), has gained 8.2% over the past month. It has been more than a month since the company reported its earnings for the quarter ended April 2024.

Ambarella reported revenue of $54.47 million in the last reported quarter, representing a year-over-year change of -12.3%. Earnings per share of -$0.26 for the same period, compared to -$0.15 a year earlier.

Ambarella is expected to report a loss of $0.19 per share for the current quarter, which would represent a year-over-year change of -26.7%. Over the past 30 days, the Zacks Consensus Estimate has changed by -0.2%.

The overall direction and magnitude of the estimate revisions translate into a Zacks Rank #3 (Hold) for Ambarella. Additionally, the stock has a VGM Score of D.

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