Broadcom (NASDAQ:AVGO) has slid into a deep bear market, down roughly 25% from its year-to-date high even as the broader market shows no such strain.
The Nasdaq 100 and S&P 500 are both hovering near record levels, underscoring how sharply AVGO has diverged from its peers.
That divergence sets up a pivotal moment for the stock, as its September 2nd earnings report will test whether this pullback is a temporary setback or the start of something more troubling.
Broadcom’s Earnings Will Come Out on September 2nd
Broadcom stock has plunged in the past few months, even as its business continues firing on all cylinders. Its last earnings report showed that its revenue jumped by 48% in the second quarter to $22.1 billion. This growth was driven by its AI business, which revenue soared by 148% to over 148%.
There are signs that this business will continue growing, especially after the recent announcement from OpenAI. In a statement this week, the company said that its Jalapeno chip was beating those made by Nvidia (NASDAQ:NVDA) in some key benchmarks. This chip is built in collaboration with Broadcom.
Analysts are optimistic that Broadcom’s business will continue performing well in the third fiscal quarter. The average estimate calls for revenue to soar 84.5% year-over-year to $29.43 billion, while fourth-quarter revenue is expected to jump 94% to $34.9 billion.
If those projections hold, full-year revenue would reach $106 billion, marking 66% annual growth. Looking further ahead, revenue is expected to climb another 63% next year, to $173.2 billion. These numbers mean that the company is one of the fastest-growing names in the US.
This explains why analysts have a bullish outlook for the company. The most bullish analyst, Evercore (NYSE:EVR), sees the stock soaring to $582, up by 57% from the current level. Some of the other bullish analysts are from companies like Deutsche Bank, Jefferies, Rosenblatt Securities, and Truist Financial.
Broadcom Stock Has Dropped Amid Valuation Concerns
Broadcom has a market capitalization of over $1.75 trillion, with its valuation multiples showing that it is not cheap. Seeking Alpha data shows that the company has a forward price-to-earnings ratio of 31.7, higher than the sector median of 22. This multiple is also higher than the five-year average of 27.
Broadcom’s valuation multiples are also higher than those of other technology companies, including Nvidia (NASDAQ:NVDA), Micron (NASDAQ:MU), and SanDisk (NASDAQ:SNDK). As such, the company will need to publish stronger results to justify the valuation metrics.
On the positive side, Broadcom has a long track record of delivering stronger-than-expected results, having beaten EPS estimates in each of the last four consecutive quarters. Traders appear to expect this streak to continue: a Polymarket market currently prices in a 95% probability that the company will beat estimates again.
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