Broadcom (AVGO) stock price will be in the spotlight in the next two weeks as the market receives information about the state of the artificial intelligence space. 

It will likely react to this week’s Nvidia earnings, which will have an impact on most semiconductor companies. Strong results and forward guidance will be a positive thing for the sector since Nvidia has become the poster child of the booming AI sector. 

Broadcom will then publish its quarterly results on Thursday next week. Again, these numbers will be notable because they will provide more color about AI and the software industry.

Broadcom is a global tech giant

Broadcom is not a mainstream company because most customers don’t interact with its products and services directly. 

However, in the past decade, it has become one of the vital players in the tech industry, thanks to the diverse solutions it offers. 

For one, if you use Apple products, you definitely use Broadcom’s products since it is the main supplier of wireless chips such as those used for Wi-Fi and Bluetooth. 

The company is also widely used by many companies around the world. For example, it acquired VMware in 2023, a company that offers virtualization and cloud computing software for over $54 billion.

Broadcom also owns Symantec, a company that offers cybersecurity solutions to companies and other large organisations. It also bought CA Technologies for $18.2 billion. 

All these solutions have made Broadcom a global giant valued at over $743 billion, making it the 11th biggest company in the world.

Most recently, its diverse suite has made it one of the most popular AI stocks in the industry. It has achieved that by building artificial intelligence semiconductors, cybersecurity solutions, and networking products. 

Broadcom earnings preview

The next important catalyst for the Broadcom stock price will be its third quarter FY’24 earnings, which will provide more color about its business. 

In its most recent results, the company said that its revenue jumped by 43% to $12.4 billion last quarter. Most of this spectacular growth was because the quarter included VMware, which it did not have the same period last year.

Broadcom’s net income rose to $2.1 billion while its adjusted earnings before interest, tax, depreciation, and armotisation (EBITDA) increased to $7.42 billion. 

Most importantly, the company boosted its forward guidance for the year. It expects that its annual revenue will come in at $51 billion, a 42% increase from what it made last year.

Broadcom has historically been a highly conservative company and there are chances that its real figure will be higher than guidance. 

For next week, analysts expect that its revenue will come in at $12.96 billion, a big increase compared to the $8.8 billion it made last year. Its next quarter revenue is expected to come in at $14 billion, also higher than the $9.3 billion it made in the same quarter in 2023.

Broadcom’s earnings and revenues have beaten analysts’ expectations in most quarters in the past few years.

Also, the stock tends to have big volatility when it publishes its financial results. For example, in June, the stock jumped by over 12% after the company released its Q2 earnings. Before that, it dropped by over 7% when it released its Q1 numbers.

AVGO valuation metrics

A key concern among investors is that Broadcom has become a highly overvalued company with a market cap of over $750 billion. If its bull run continues, there is a likelihood that the company’s valuation will get to $1 trillion.

A closer look shows that the company is quite overvalued. Broadcom’s annual revenue this year will be about $51 billion and the company has a net income margin of 24%, meaning that its profits will be $12.2 billion. This gives it a forward earnings multiple of 61.8, which is quite expensive.

Now, assuming that Broadcom’s revenue grows by 20% in the next five years, it means that its revenue in 2029 will be $127 billion, giving it an annual profit of $30.48 billion and a forward multiple of 24.73, which is also not cheap.

Additionally, the company is highly leveraged, as its total debt has jumped to over $71 billion from $30 billion in 2020. Therefore, to justify this valuation, Broadcom will need to continue doing well to justify the valuation.

Broadcom stock price analysis

(Click on image to enlarge)

Broadcom stock | Source: TradingView

This is a difficult prediction because of the upcoming Nvidia and Broadcom earnings. On the daily chart, we see that the stock remains above the 50-day and 100-day Exponential Moving Averages (EMA), meaning that bulls are still in control.

The stock has also formed what looks like an inverse head and shoulders pattern, a popular bullish sign. Therefore, there is a likelihood that the stock will bounce back soon. If this happens, the key point to watch will be at $173.74, its highest point last week. A break above that level will see it reach an all-time high of $184.

The alternative scenario is where the stock drops to the support at $148, the 100-day moving average.

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