While Nvidia (NVDA) is getting a large share of investors’ attention thanks to the popularity of its advanced semiconductor chips, it would be a big mistake to ignore Broadcom (AVGO). The chip maker is carving out its niche in the market with niche products that are cheaper than Nvidia chips.
With Broadcom’s earnings report coming on March 4, what should investors expect from the chipmaker?
Based in San Jose, California, Broadcom is a leading semiconductor company whose products are used in data centers, telecommunications equipment, broadband, and more. The company has a market capitalization of approximately 1.5 trillion dollars, ranking it in the 10th place in the world among publicly traded companies.
Broadcom chips are in high demand as high-performance semiconductors are needed to design, train and operate artificial intelligence platforms. Broadcom’s answer to this need is its custom ASIC chips, or application-specific integrated circuits, designed to handle its customers’ specific workloads. This means the chips are less flexible than Nvidia’s general-purpose graphics processing units. Still, that makes Broadcom’s chips cheaper — an important consideration as companies spend billions on AI infrastructure.
Broadcom currently has a $10 billion deal to supply Entropy with custom chips, and it’s working with Alphabet ( GOOG ) ( GOOGL ) to make the company’s tensor processing units (TPUs) that Google uses as a replacement for Nvidia GPUs.
AVGO stock is up 65% over the past 12 months, handily beating the performance of the S&P 500 ($SPX) (up 15%) and Nvidia (up 56%). However, Broadcom’s stock comes in at a bit of a premium, with a forward price-to-earnings ratio of 30.4 versus Nvidia’s 21.8. The stock also pays a dividend yield of 0.8%—not huge, but a nice bonus for a tech stock.
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Broadcom had a strong earnings report for the fourth quarter of fiscal 2025 (ended November 2). Revenue of $18 billion was up 28% from last year, and net income of $8.51 billion was up 97%. Broadcom reported adjusted earnings per share of $1.95, which beat analysts’ estimates of $1.86.
“In Q4, record revenue of $18.0 billion grew 28% year-over-year, driven primarily by AI semiconductor revenue that increased 74% year-over-year,” said CEO Hock Tan. “We see the momentum continuing in Q1 and expect AI semiconductor revenue to double year-over-year to $8.2 billion, driven by custom AI accelerators and Ethernet AI switches.”
Management issued guidance for revenue of about $19.1 billion. But analysts will be looking for more information on additional sales for Broadcom’s custom chips. Broadcom said in June that it had three customers for its custom AI chips and four prospects. In December, it acknowledged Entropy as its fourth customer and said it had signed a deal with a fifth, undisclosed customer.
Any indication from Broadcom when it reports earnings on Wednesday that it continues to sign new deals is likely to have an immediate impact on the stock price. But the lack of such news will likely be seen as a sign that Broadcom is falling further behind Nvidia.
Consensus estimates call for earnings of $1.67 per share, versus $1.40 per share in Q1 2025.
The remarkable thing about Broadcom is that analysts are almost unanimous in their support for the stock. Among the 43 analysts covering AVGO stock, 41 have a “buy” rating, and the other two have a “hold” rating. An average price target of $449 indicates that experts predict a 44% gain in AVGO stock, with a high target of $535 suggesting a 71% gain. Even a lower target of $335 predicts modest gains from today’s stock price.
There’s never a sure thing in the stock market, but it’s also hard to ignore the tailwinds for Nvidia, Broadcom and other top chipmakers. Amazon ( AMZN ), Meta Platforms ( META ), Microsoft ( MSFT ), and Alphabet are estimated to spend up to $700 billion on AI infrastructure together, and a large percentage of that will go to chips.
I’ll be watching Wednesday’s earnings to see what Broadcom has to say about its growing customer base, but the stock looks like a solid buy right now.
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At the time of publication, Patrick Sanders held a position in: NVDA. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
