Broadcom Set To Report Q3 Earnings: Buy, Sell Or Hold The Stock?

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Broadcom (AVGO - Free Report) is set to report its third-quarter fiscal 2026 results on Sept. 2.

For the third quarter of fiscal 2026, Broadcom expects revenues of approximately $29.4 billion, indicating 84% year-over-year growth. The Zacks Consensus Estimate for revenues is pegged at $29.47 billion, suggesting growth of 84.74% from the year-ago quarter’s reported figure.

The consensus mark for earnings has been unchanged at $3.22 per share over the past 30 days, indicating 90.53% growth from the figure reported in the year-ago quarter.

Consensus Earnings Trend

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Broadcom’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 2.19%. 

Let us see how things have shaped up for AVGO shares prior to this announcement.

Factors to Note Prior to Broadcom’s Q3 Earnings

Broadcom’s third-quarter fiscal 2026 performance is expected to have benefited from accelerating demand for AI semiconductors, improving non-AI semiconductor trends, and stronger infrastructure software revenues. For the third quarter of fiscal 2026, Semiconductor revenues are projected to reach roughly $20.5 billion, up 124% year over year, while infrastructure software revenues are forecasted to be approximately $8.9 billion, up 31%. The strong outlook reflects continued expansion across both Broadcom’s semiconductor and VMware businesses. 

AI semiconductors are likely to remain the primary growth driver. For the third quarter of fiscal 2026, Broadcom expects AI semiconductor revenues to accelerate to approximately $16 billion in the third quarter, representing growth of more than 200% year over year. Demand for custom XPUs and AI networking products remains exceptionally strong, with AI semiconductor bookings exceeding $30 billion in the fiscal second quarter compared with $10.8 billion of shipments. The company expects AI semiconductor revenues to double in the second half of 2026 compared with the first half, reflecting robust customer commitments and a strong pipeline of multi-gigawatt partnerships with leading AI developers such as Google (GOOGL), Anthropic, OpenAI and Meta (META).

Broadcom’s non-AI semiconductor business is also expected to have contributed to fiscal third-quarter growth as cyclical conditions improve. Non-AI semiconductor revenues were $4.2 billion in the second quarter of fiscal 2026, up 6% year over year, while bookings exceeded $6 billion, indicating strengthening demand. Broadband, server storage, and enterprise networking delivered growth despite seasonal weakness in wireless. Reflecting this recovery, Broadcom expects fiscal third-quarter non-AI semiconductor revenues of approximately $4.5 billion, up 12% year over year.

However, Broadcom’s third-quarter fiscal 2026 results are expected to face gross-margin pressure from a heavier mix of lower-margin AI semiconductors, particularly TPUs. The company expects consolidated gross margin to decline to about 74%, despite strong operating leverage.

AVGO Shares Underperform Sector

AVGO shares have rallied 7% year to date (YTD), underperforming the broader Zacks Computer and Technology sector’s return of 17.1%. The company has underperformed its peers in the year-to-date period, including Cisco Systems (CSCO - Free Report), Hewlett Packard (HPE - Free Report) and Marvell Technology (MRVL - Free Report), which are also expanding their footprint in the AI infrastructure space. Shares of Cisco Systems, Hewlett Packard Enterprise and Marvell Technology have surged 43.5%, 117.5% and 149.1%, respectively, over the same timeframe.

AVGO Stock’s Price Performance

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The AVGO stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.

In terms of the forward 12-month price/earnings (P/E), Broadcom shares are trading at 10.75X, higher than the Computer and Technology sector’s 6.18X, Cisco’s 6.06X and Hewlett Packard’s 1.39X but lower than Marvell’s 12.64X.

AVGO Stock’s Valuation

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Strong AI Portfolio Aids Broadcom’s Long-Term Prospects

Broadcom’s AI momentum is expected to continue, thanks to a clientele that includes Google, Anthropic, OpenAI and Meta. The company has a long-term agreement with Google to develop and supply multiple generations of TPUs and AI networking products. Anthropic is expected to gain access to another 5 gigawatts of next-generation TPU-based compute beginning in 2027, while OpenAI has committed to deploying 1.3 gigawatts in 2027. Broadcom is also working with Meta on multiple generations of MTIA XPUs, with 3 gigawatts expected to be deployed through 2028. 

The company’s networking portfolio further strengthens its AI positioning. Broadcom offers Ethernet switches, PCI Express products, DSPs, lasers, NICs and routers that connect large-scale XPU and GPU clusters. Its Tomahawk 6, Jericho fabric solutions and co-packaged optics capabilities position the company to benefit as AI clusters scale across racks and data centers.

Broadcom expects fiscal 2026 AI semiconductor revenues of $56 billion, up approximately 180% year over year, and continues to forecast more than $100 billion in fiscal 2027. Management also expects AI demand to remain strong into fiscal 2028, supported by accelerating compute-capacity requirements and increasing Broadcom content per gigawatt across successive XPU generations. These trends bode well for AVGO’s long-term growth prospects.

Conclusion

Broadcom’s strong portfolio reflects solid top-line growth potential over the long run. However, gross margin remains under pressure, and a stretched valuation makes the stock a risky bet ahead of third-quarter fiscal 2026 results.

AVGO currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a favorable entry point to accumulate the stock.