Is Broadcom a Buy Before Sept. 4 Earnings?

A Stellar Ascent in AI and Beyond

Broadcom (NASDAQ:AVGO) has been a standout performer, soaring 120% from its April lows and delivering an astonishing 500% return over the past three years. This meteoric rise is fueled by Broadcom’s strategic pivot into artificial intelligence (AI), particularly in data centers, where its custom AI chips and networking solutions are in high demand. 

The company reportedly controls around 70% of the custom AI chip market, serving hyperscale clients like major tech giants Google and Meta Platforms (NASDAQ:META) building AI infrastructure. This is distinct from the general-purpose AI chip market, where Nvidia (NASDAQ:NVDA) dominates.

Broadcom’s $69 billion acquisition of VMware has also bolstered its infrastructure software segment, nearly tripling revenue in that division. With a market cap nearing $1.4 trillion, Broadcom is no longer just a chipmaker but a full-stack AI and infrastructure powerhouse. 

As AVGO prepares to report its fiscal third-quarter earnings on Thursday, Sept. 4, investors face a critical question: Should they buy before the report or wait?

Analysts Set High Bar in High Stakes Race

Wall Street is bullish on Broadcom, with 27 analysts assigning a “Strong Buy” rating and an average 12-month price target of $306 per share, though some targets reach as high as $400 per share. 

For Q3, analysts forecast revenue of $15.82 billion, a 21% year-over-year increase, driven by AI semiconductor revenue that is expected to hit $5.1 billion (up 60%) and infrastructure software at $6.7 billion (up 16%). Adjusted earnings per share (EPS) are projected at $1.66 per share, reflecting a robust 35% growth. 

Broadcom’s track record is impressive, beating EPS estimates in all four of the past quarters, though Q2’s $1.58 EPS only exceeded forecasts by a penny. AVGO did beat by $0.09 per share in last year’s Q4. However, Wall Street has been remarkably accurate, typically predicting within 2% of actual EPS in three of the last four quarters, suggesting a tightly calibrated outlook.

Can Broadcom Beat the Street Again?

Broadcom’s ability to surpass estimates hinges on its AI-driven growth and VMware integration. The company’s guidance aligns closely with Wall Street’s, projecting $15.8 billion in revenue, which leaves room for a modest beat if AI chip demand exceeds expectations. 

Management’s optimism about inference demand and new custom accelerator customers could provide upside, potentially pushing AI revenue toward the higher end of their $60 billion to $90 billion 2027 target. Apple (NASDAQ:AAPL), for example, is a major customer of Broadcom and is making a big push into AI that could accelerate growth.

However, challenges in non-AI semiconductor segments and rising interest expenses from the VMware acquisition could temper results. With a forward P/E ratio of 35x, well above Nvidia’s 27x, the stock’s lofty valuation amplifies downside risk if estimates are missed. Still, Broadcom’s consistent outperformance — beating EPS forecasts at least four times in a row — suggests a strong chance of another beat, though likely by a slim margin given Wall Street’s precision.

Long-Term Growth is A Bright Horizon

Analysts project Broadcom’s EPS to grow at an accelerated 27% annually over the next five years, handily outpacing the sector median of 15%. Revenue is expected to grow 14.01% per year, reaching $76.2 billion by the end of fiscal 2026, driven by AI and software. 

The company’s 70% share of the custom AI chip market positions it to capitalize on the $60 billion to $90 billion serviceable addressable market by 2027. Even if Q3 results disappoint, Broadcom’s diversified growth in AI, networking, and software, coupled with its history of accretive acquisitions, makes it a compelling long-term investment.

Key Takeaway

Deciding whether to buy AVGO before Sept. 4 is tricky. The stock’s elevated valuation and Wall Street’s tight estimates suggest limited upside from a potential earnings beat, with downside risk if guidance underwhelms. 

Cautious investors might wait for a post-earnings dip, especially if shares pull back as they did 5% after Q2’s modest beat. However, Broadcom’s dominant AI market position, robust EPS growth, and diversified revenue streams make it a stellar long-term buy-and-hold stock. 

Whether you buy before or after earnings, AVGO’s trajectory in AI and software positions it as a portfolio cornerstone for years to come.