Broadcom Earnings Provide Next Test of Resolve for AI Rally – Yahoo Finance

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(Bloomberg) — Pressure is on Broadcom Inc. ahead of Thursday’s earnings to show investors that AI demand will offset a slump in computer and telephone sales.

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With a gain of more than 50% since its last quarterly report, the stakes have ratcheted up for the Palo Alto, California-based company at a time when the likes of Advanced Micro Devices Inc. and Super Micro Computer Inc. have been bid up on expectations that demand for hardware used in AI computing is just beginning. Broadcom’s shares rose as much as 3.7% in intraday trading.

Scrutiny is on such firms, as concerns mount that the broader market rally looks more like a bubble than the early innings of a major growth cycle. Any signs of weakness could trigger a dash for the exit in some of the largest tech stocks, potentially sparking a broader selloff.

“Broadcom and a lot of names like it have benefited from the AI-hype cycle a lot and so we think the bar is pretty high for them,” going into earnings, said David Klink, senior equity analyst at Huntington National Bank.

Read more: ‘Frenzy’ for Nvidia and Other AI Chip Stocks Has Mizuho Nervous

Options point to a possible stock swing of 7% in either direction, which would be Broadcom’s biggest post-earnings move since 2021, according to data compiled by Bloomberg. The firm’s market capitalization pushed past that of Tesla Inc. last week, and the stock trades near an all-time high.

Wall Street expects first quarter 2024 revenue of $11.8 billion, a more than 30% jump from a year earlier. The company’s forward guidance will also be closely watched – investors hope Broadcom reiterates that its relationships with chip customers are strong.

“We are never concerned with quarter by quarter drama but at the same time we are looking at what they are saying on a forward basis,” said David Bahnsen, chief investment officer at The Bahnsen Group.

Investors also expect an update on the company’s VMware acquisition and its other lines of business outside chipmaking. Broadcom’s diverse group of acquisitions sets it apart from other AI companies, which are more focused. While some view these multiple lines as downside protection in the event of an AI-driven selloff, it could also cap potential gains as the rally grinds higher.

“What they’re going to try to do, because they did this last quarter, is emphasize their ties to AI,” said Kim Forrest, chief investment officer at Bokeh Capital Partners LLC. “I don’t think it’s strong enough for them to survive all the other businesses because they are not growing like generative AI.”

Read more: Broadcom CEO Expects AI Windfall Even as Sales Growth Slows

Bulls point to Broadcom’s valuation. It trades at roughly 28 times forward earnings, cheaper than AI peers like Nvidia at 37 and AMD at about 54.

“The worry with Broadcom is that once the AI luster wears off a bit you got to actually look at the other businesses behind it,” Klink said. “We’re optimistic on it but we would think that it would be a little more at risk than some of the maybe top chip guys, like AMD or Nvidia.”

Tech Chart of the Day

Options trading in semiconductor stocks is exploding as investors bet on the hottest thing in equity markets these days: artificial intelligence. Daily average notional volume in single stock puts and calls for members of the Philadelphia Semiconductor Index exceeded $145 billion in February — about double the average at the end of 2023 and seven times higher than a year earlier.

Top Tech News

  • Concerns that Nvidia Corp.’s stratospheric gains might be unsustainable have spread to ESG investment managers who beat the market last year by betting big on the stock.

  • SK Hynix Inc. is ramping up its spending on advanced chip packaging, in hopes of capturing more of the burgeoning demand for a crucial component in artificial intelligence development: high-bandwidth memory.

  • The US government is pressing allies including the Netherlands, Germany, South Korea and Japan to further tighten restrictions on China’s access to semiconductor technology, a controversial effort that’s drawing resistance in some countries, according to people familiar with the matter.

  • Apple’s car program cost, on average, roughly $1 billion annually (or nearly a fifth of Apple’s research and development budget a decade ago), with outside teams for chips, camera sensors, cloud services and software adding hundreds of millions of dollars more to the yearly spend.

  • A Chinese software engineer working for Alphabet Inc.’s Google was charged by the US Justice Department with stealing trade secrets for developing artificial intelligence from the company’s supercomputing data centers.

Earnings Due Thursday

  • Postmarket

    • Broadcom

    • Marvell Technology

    • MongoDB

    • Samsara

    • DocuSign

    • Guidewire

    • Grindr

–With assistance from Jan-Patrick Barnert.

(Updates stock moves throughout.)

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