Broadcom Earnings Preview: What to Watch When AVGO Reports
Broadcom Earnings Preview: What to Watch When AVGO Reports
- Broadcom is scheduled to report Q1 earnings on Wednesday, March 4, after the market close.
- Investors are looking for an opportunity to play a bottom in the stock after a 9% down move from the start of the year.
- The options market is pricing in an expected move of +/- 25.64 points.
Broadcom earnings: expectations are high as the stock price falls
Broadcom (AVGO) is scheduled to report first-quarter earnings on Wednesday, March 4, after the market close. A conference call with management will take place at 4:00 p.m. ET.
The stock is down 9% since the start of the year, although prices remain above their February 295.30 swing low. That compares to a nearly unchanged S&P 500.
Broadcom’s fourth quarter results from December failed to inspire confidence, which sent the stock sharply lower following the results.
The company stated that it expects gross margins to decline about 100 basis points in the first quarter due to its product mix shifting to custom AI chips, products that have lower margins than its infrastructure software segment.
Chief Executive Officer Hock Tan also stated that AI demand was “hard to pinpoint,” which pushed investors who expected perfection off balance.
More recently, the United States extended its review of export license applications for AI hardware, citing national security concerns. In turn, Chinese customers paused orders, and China issued a directive to ban foreign software use by state-owned enterprises by the middle of this year. Nearly a fifth of Broadcom’s business is exposed to China.
What to watch out for when Broadcom reports
AI revenue: Broadcom guided revenue from AI at $8.2 billion in the first quarter. That would be up about 100% from the year prior. If Broadcom achieves this figure, it could help to inspire some confidence.
Backlog for AI: the backlog was at $73 billion last quarter. If this number grows, it essentially shows that demand is growing at this stage.
According to TradingView, analysts expect Broadcom to report earnings per share (EPS) of $2.03 on $19.26 billion in revenue. That would compare to an EPS of $1.60 on $14.92 billion in revenue a year ago.
Trading Broadcom
Broadcom is down from its recent highs, but the February swing low found intraday support at the 300 psychological level. With prices trading around the 313 handle ahead of earnings, that level may turn to support again if prices drop after the numbers do.
Technically, the falling 9- and 21-day exponential moving averages (EMAs) have kept price action subdued, with several intraday attempts to clear above the EMAs ultimately failing over the past several weeks. Prices would need a decisive close above the EMAs to stage a rally.
The implied volatility rank (IVR) for Broadcom sat at 59.5 as of Tuesday, March 3. That means volatility is slightly elevated compared to the past twelve months of trading. The options market shows an expected move of +/- 25.64 points, or about 8.2% of Tuesday’s trading price of 313.11 near the close.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
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