After taking a massive hit over the past several months, chip stocks have come roaring back over the past two weeks, rising along with the rest of the tech sector, on optimism that interest rates may not rise as swiftly as previously anticipated. Within the chip sector, Broadcom (AVGO) stock has regained some key technical levels.
But unlike other chip stocks, its shares have risen over the past thirty days (up 7%), three months (up 4%) and six months (up 21%). In other words, Broadcom has not succumbed to the level of punishment its peers have endured. But now might be a good time to buy. The semiconductor giant will report first quarter fiscal 2022 earnings results after the closing bell Thursday. Broadcom might not garner the attention Nvidia (NVDA) or AMD (AMD) often receives, but Broadcom has proven to be an equal beneficiary of the secular growth trends in various chip components solutions.
Not only does the company supply chips that power smartphones, Broadcom also has a leading position in high-growth areas like the cloud, datacenters, and both residential and office networking equipment. With its focus also shifting to datacenter growth, which accounts for more than 30% of total revenue, Broadcom has a strong portfolio of services, particularly given its 5G capabilities. On a mission to become the world leader in infrastructure technology, the company has gone on an acquisition spree and diversifying its business away from its core semiconductor segments.
Timely deals for Symantec and CA Technologies, Broadcom continues to not only extend its market leadership in these areas, it has also expanded its operating margins as its shifts its revenue mix towards the infrastructure software segment. Broadcom’s diversified revenue stream insulates the company from any adverse impact of a potential slowdown in the semiconductor industry’s growth. For the stock to maintain its uptrend, it will take upbeat semiconductor revenue guidance and datacenter results that excites the market.
For the quarter that ended January, Wall Street expects the the San Jose, Calif.-based company to earn $8.08 per share on revenue of $7.6 billion. This compares to the year-ago quarter when earnings came to $6.61 per share on revenue of $6.66 billion. For the full year, ending in October, earnings are projected to rise 18% year over year to $33.05 per share, while full-year revenue of $30.67 billion would rise 11.7% year over year.
Broadcom's transition towards software and other services has been one of the key reasons that its full-year revenue and earnings growth are trending higher despite the pandemic. Though the company is broadly known for making chips for wireless, broadband, networking, enterprise storage and industrial applications, the market has applauded the company’s high-growth and high-margin strategies. In addition to its goal of becoming the world leader in infrastructure technology, the company’s ability to generate 90% of recurring revenues demonstrates superior customer loyalty.
In the fourth quarter, revenues of $7.41 billion, rose 14.5% year over year, beating Street expectations by $47 million. The company also beat on the bottom line, delivering adjusted EPS of $7.81, higher than the $7.77 analysts were looking for. Of the revenue total, Semiconductor solutions revenue rose 17% to $5.63 billion, while Infrastructure software rose 8% to $1.77 billion. The company ended the quarter with $12.16 billion in cash, and announced a $10 billion stock buyback.
It was an impressive quarter all around. But for the stock to rebound, the company on Thursday will need to show revenue and profit growth acceleration and speak confidently about its supply chain being less of a headwind.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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