Chip giant Broadcom Inc stands at a critical juncture this week as it prepares to unveil its latest earnings figures. City analysts are keenly anticipating robust results following the market close on Wednesday. Yet, a palpable sense of unease lingers, suggesting even stellar performance might not be enough to reverse the stock’s protracted period of decline.
Broadcom shares have seen a significant battering, plummeting 24% from their December peak. This underperformance starkly contrasts with the broader S&P 500 Index. The sell-off reflects a wider investor rotation away from the largest technology firms, fuelled by growing apprehension regarding the sustainability of the colossal investments pouring into artificial intelligence development. As a key chipmaking partner for tech titans like Alphabet Inc and other AI innovators, Broadcom is a primary beneficiary of this substantial capital injection, making its performance a barometer for the sector.
Despite these market anxieties, Broadcom’s immediate prospects appear solid. Projections indicate a robust 27% increase in fiscal first-quarter adjusted earnings per share year-on-year, reaching an estimated $2.03. Revenue is expected to climb by 29% to approximately $19.3 billion, with AI-related sales nearly doubling to roughly $8.2 billion. Many market observers would not be taken aback if the company also offered an encouraging forward outlook.
However, a sense of caution pervades the market. Paul Meeks, head of tech research at Freedom Capital Markets, succinctly captured this sentiment: "Broadcom will have great things to say, but it may not matter." This reflects recent market behaviour, notably seen with Nvidia Corp. Last week, the graphics chip powerhouse surpassed Wall Street’s expectations and elevated its forward guidance, citing strong demand and significant capital expenditures from hyperscalers. Yet, its shares plummeted by 9.4% across the subsequent two trading days, marking its steepest two-day decline since April.
Broadcom itself experienced a significant battering following its prior earnings announcement in December, with shares falling over 11% in their worst performance in nearly a year. The catalyst then was a reported $73 billion backlog in AI product orders over the ensuing six quarters that failed to meet investor projections. Consequently, investors will be eagerly awaiting an update on this situation. Further scrutiny will fall on developments concerning its bespoke Tensor Processing Unit (TPU) chips designed for Google, with orders anticipated to accelerate considerably during the latter half of the fiscal year. An existing agreement with OpenAI is also expected to contribute to expansion well into 2027.
Shaon Baqui, a senior tech research analyst at Janus Henderson, which holds Broadcom shares, stressed the importance of the company highlighting its core strengths. "It’s going to be really important for them to emphasize their real expertise here in designing these large custom chips," Baqui stated. "They’ve got a real proven track record at Google with seven generations of Google TPU. That ability to execute generation after generation is really important, especially again, when you have to compete against Nvidia." This earnings report is truly the acid test for Broadcom’s ability to navigate the complex and often irrational currents of the AI investment landscape.
