Broadcom (AVGO) is set to report its fiscal Q3 2024 earnings after the close tonight, with analysts expecting revenue of $12.97 billion and EPS of $1.22. Investors will be closely watching the company’s AI-related revenue, as AVGO has become a key player in the AI chip market. Analysts at Morgan Stanley (MSCO) and Wells Fargo expect a strong quarter driven by custom AI silicon momentum, with potential for Broadcom to raise its full-year AI revenue guidance. Currently, AVGO’s guidance implies no AI growth for the next two quarters, but analysts see opportunities in both ASIC and Ethernet, which could lead to an upward revision.

Morgan Stanley is modeling AI revenue at $12 billion for FY2024, increasing to $15 billion in FY2025, reflecting strong demand for Broadcom’s custom AI chips. The company’s partnership with major tech players like Google and Meta is expected to drive significant AI revenue, and there is potential for further diversification with new customers like Microsoft, ByteDance, and Apple. Broadcom’s ability to capitalize on AI demand is seen as a key catalyst for growth in the near and long term, especially as the AI market continues to accelerate.

Wells Fargo also expects Broadcom to raise its FY24 AI revenue guidance to more than $12 billion, driven by strong demand for custom AI ASICs, which are estimated to make up 70% of the company’s AI revenue. In FY2025, Wells Fargo is modeling a 40% year-over-year increase in AI semiconductor revenue to $17.1 billion. However, competition remains fierce, particularly from Marvell (MRVL), which has seen strong growth driven by its partnerships with AWS and Google. Investors will be looking for Broadcom to solidify its position in the AI market with strong earnings results and updated guidance.

Broadcom (AVGO) has consistently exceeded earnings expectations over the past four quarters, with EPS surprises ranging from $0.10 to $0.62 above analyst consensus. In its most recent quarter, fiscal Q2 2024 (reported on June 12, 2024), the company delivered an EPS of $10.96, surpassing the consensus estimate of $10.85, with a year-over-year revenue growth of 43%, reaching $12.06 billion. This strong revenue growth represented an acceleration from previous quarters, with Q1 2024 showing 34.2% growth, Q4 2023 growing by 4.1%, and Q3 2023 increasing by 4.5%.

Looking ahead, Broadcom provided FY24 revenue guidance of approximately $51.0 billion, up from previous estimates of $50.58 billion, indicating continued confidence in its growth trajectory. The company’s strong performance and positive guidance highlight the significant demand for its products, particularly in AI and infrastructure software. Broadcom delivered an impressive Q2 fiscal 2024 earnings report, driven largely by surging demand for AI technologies, which grew 280% year-over-year. The company’s total revenue jumped 43% year-over-year to $12.49 billion, with AI accounting for a quarter of total sales, up from 19% in the prior quarter. This strength in AI enabled Broadcom to raise its full-year revenue outlook by $1 billion to $51 billion, despite ongoing challenges in other markets like telecom and enterprise. The company also announced a 10-for-1 stock split, further boosting investor sentiment.

Broadcom's acquisition of VMware also played a key role in its strong revenue growth, contributing 31 percentage points of the 43% revenue increase. The successful integration of VMware is progressing well, with the transition to a subscription model helping drive operating margin improvements. Broadcom expects VMware to achieve a $4 billion quarterly revenue run rate, which will further enhance the company's Infrastructure Software segment's overall performance.

While AI and VMware fueled significant growth, other areas of Broadcom’s business faced challenges. Wireless revenue, primarily from Apple, grew just 2% year-over-year, while server storage connectivity and broadband sales dropped by 27% and 39%, respectively. Despite these declines, Broadcom remains optimistic about a recovery in both segments in the latter half of fiscal 2024. Although competition from NVIDIA looms, especially with the upcoming launch of its Blackwell chip and Spectrum-X Ethernet switch, Broadcom’s CEO expressed confidence in the company’s ability to maintain its competitive edge in AI and networking technologies.

On July 18, Broadcom's shares rose following news that OpenAI is in discussions with the company to develop a custom AI chip, further solidifying Broadcom's position as a key partner for AI-optimized silicon. The collaboration, led by Richard Ho, a former Google employee who worked on Google's Tensor Processing Unit (TPU), highlights OpenAI's focus on advancing its AI hardware capabilities. However, analysts note that the chip's development is still in early stages, with production not expected until 2026 at the earliest.

Another topic we would watch for during the Q&A is a potential ByteDance deal. Broadcom is reportedly in talks to develop advanced AI chips for ByteDance, the parent company of TikTok, as ByteDance looks to diversify its chip supply due to U.S. restrictions on NVIDIA's advanced chips in China. ByteDance, already a significant customer of AVGO for networking and server components, is turning to Broadcom for its new 5nm AI chips, which could be manufactured by Taiwan Semiconductor (TSMC) and are not subject to U.S. sanctions. While the deal is not yet finalized, it could provide a major boost to AVGO’s AI business, which saw record revenue of $3.1 billion in Q2, driven by strong demand from hyperscalers and AI accelerators. This potential partnership with ByteDance could become a key growth driver, complementing AVGO’s already surging AI and infrastructure software segments, particularly following its VMware acquisition.