What To Expect In Broadcom's Upcoming Q3 Results: Analyst Forecasts Margins, Segment Breakdown, And Vmware Update

BMO Capital Markets analyst Ambrish Srivastava reiterated an Outperform rating on Broadcom Inc. AVGO with a price target of $890.

The company will release its Q3 results on Thursday, August 31, 2023. 

For Q3, Srivastava expects Broadcom to report revenues of $8.85 billion, up 1% Q/Q, and EPS of $10.35, up 1% Q/Q.

The analyst expects an update on the trajectory of the generative AI opportunity the company highlighted over the previous two quarters. 

Srivastava adds that key catalysts that can likely boost Q3 earnings are the steady march of superior FCF generation and further evidence of participating in the generative AI spend.

Also Read: Broadcom's AI Contribution Surge and iPhone 15 Launch Impact: Oppenheimer Justifies Outperform

Srivastava forecasts Q3 gross margin to be 75%, down from 75.6% in Q2. 

By segment, the analyst projects Semiconductor Solutions (78% of total) to be up 5% Y/Y and Infrastructure Software (22% of total) to be up 4% Y/Y. 

Broadcom noted that Q3 revenues from generative AI could exceed $1 billion, the analyst adds. Broadcom had stated that it expected to see generative AI revenues of ~$3 billion for compute off-load and $800 million for switches in FY23, vs. the combined $2.2 billion in FY22. 

In terms of the various segments within Semiconductor Solutions, the analyst expects Wireless Communications to be up in the low-single digits percentage Q/Q and Wired Infrastructure to be flattish Q/Q.

Srivastava estimates Industrial & Other to be down in the mid-single digit percentage range Q/Q and Enterprise Storage to be up in the mid-single digit percentage range Q/Q. 

Additionally, an update on the Vmware, Inc. VMW front is expected during the results, notes the analyst. 

Overall, the company has demonstrated tight execution through the current cycle, and it will continue, Srivastava adds. 

Also See: Broadcom's AI Contribution Surge and iPhone 15 Launch Impact: Oppenheimer Justifies Outperform

Price Action: AVGO shares are trading higher by 3.1% to $883.10 on the last checked Tuesday.