Key Takeaways:
- Broadcom reports fiscal Q3 earnings Sept. 2 after stock fell 25% from its high
- Analysts expect revenue up 84.5% to $29.43 billion on AI chip demand
- Forward P/E of 31.7 tops sector median of 22, raising the bar for results
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Broadcom earnings test valuation as stock sits 25% below high
Broadcom reports fiscal third-quarter earnings Sept. 2 with the stock down 25% from its high, testing a valuation that tops sector peers.
"We're just wondering whether or not Broadcom offers the same type of visibility," Matt Stucky, chief portfolio manager, equities, at Northwestern Mutual Wealth Management, said.
Consensus expects revenue to rise 84.5% year over year to $29.43 billion, with fourth-quarter revenue seen jumping 94% to $34.9 billion. Full-year revenue would reach $106 billion, up 66%, and climb another 63% next year to $173.2 billion, making Broadcom one of the fastest-growing companies in the US.
Broadcom's forward price-to-earnings ratio of 31.7 exceeds the sector median of 22 and its five-year average of 27, leaving little room for error. The company has beaten EPS estimates in each of the last four quarters, and Polymarket traders price a 95 percent chance of another beat.
The pullback comes even as the Nasdaq 100 and S&P 500 hover near records, and as Broadcom's business accelerates. Last quarter, revenue jumped 48% to $22.1 billion, with AI revenue soaring 148%. OpenAI said this week its Jalapeno chip, built with Broadcom, beat Nvidia's in some key benchmarks, a sign the custom silicon pipeline is deepening.
Analysts remain bullish. Evercore's $582 target implies 57% upside from the current $369 level, with Deutsche Bank, Jefferies, Rosenblatt Securities, and Truist Financial among the most optimistic. Broadcom's market capitalization exceeds $1.75 trillion.
The valuation premium extends beyond the sector median. Broadcom trades higher than Nvidia, Micron, and SanDisk on forward earnings, meaning it must deliver stronger results to justify the multiple. Nvidia's forecast of a 70% revenue jump next fiscal year set a high bar for AI chipmakers, and Broadcom's custom-chip work with OpenAI and other hyperscalers will be scrutinized for signs of similar momentum.
The report lands in a heavy week for markets. The August jobs report, due Sept. 4, will shape expectations for the Federal Reserve's September meeting, with fed funds futures pricing a 35 percent chance of a hike. A Broadcom beat could extend the AI rally that Nvidia's results ignited; a miss would test a sector already priced for perfection.
This article is for informational purposes only and does not constitute investment advice.
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