When Broadcom (AVGO) posts first-quarter results on Wednesday, investors will focus on margin along with forecast and profit numbers for the chipmaker.
Wall Street expects Broadcom to post EPS of $2.02 on revenue of $19.14 billion.
Even though Broadcom showed solid revenue growth, thanks to strong AI spending, shares still suffered amid a broader selloff in the AI and tech space. Investors are worried about near-term margin pressures amid huge investment costs related to AI.
The stock has lost over 11% since its fourth quarter results. Overall, it has lost nearly 8% compared to the 0.5% rise in the broader S&P 500 Index.
Still, analysts are mostly bullish on the stock. Seeking Alpha analysts and Wall Street rated the stock a Buy and above, with many of them optimistic about the AI growth story.
“Despite market concerns over margin compression, AVGO’s AI-driven scale and dominant networking products underpin robust top- and bottom-line growth prospects,” noted Seeking Alpha analyst Danil Sereda.
Another Seeking Alpha analyst, Dair Sansyzbayev said Broadcom’s aggressive AI-related capex from hyperscalers and expanding R&D pipeline reinforce long-term growth prospects and product leadership.
In contrast, Seeking Alpha’s Quant ratings consider it a Hold.
“As a result of the mix shift towards AI accelerators, gross margins may come down over the coming quarters, though I suspect operating leverage may offset any pressure on the bottom line,” said Seeking Alpha analyst Michael Del Monte.
Over the last two years, Broadcom has beaten EPS estimates 100% of the time and has beaten revenue estimates 88% of the time.
Over the last three months, EPS estimates have seen 24 upward revisions, compared to four downward revisions, while revenue estimates have been revised upwards 28 times versus one downward move.