Market Minute: Broadcom (AVGO) Earnings Due – Is it a Volatility Event?!

Broadcom (AVGO) is set to report earnings after the closing bell today and expectations are elevated for the Chipmaker. 

Broadcom is a multinational designer, developer, manufacturer, and global supplier of a wide range of semiconductor and infrastructure software products. Broadcom's product offerings serve the data center, networking, software, broadband, wireless, storage, and industrial markets.

Expectations are for EPS of $1.57 for 2Q 2025, compared to $1.60 in 1Q 2025 and $0.87 in 2Q 2024, reflecting a year-over-year increase of approximately 80.5%. Consensus estimates project revenue of $15 billion, a 20% increase from $12.49 billion in 2Q 2024. Broadcom’s guidance aligns closely, expecting about $14.9 billion. 

AI-related revenue is a key focus, expected to reach $4.4 billion, up 44% year-over-year and 7% sequentially, driven by demand for AI chips and networking solutions. Revenue from infrastructure software, boosted by the VMware acquisition, is projected at $6.5 billion, up 23% year-over-year. Semiconductor Revenue is expected to hit $8.4 billion, a 17% year-over-year increase and 2% sequential growth. Broadcom’s AI business, including custom AI chips for hyperscalers like Google (GOOGL), Meta (META), and ByteDance, is a major driver.

Implied Volatility levels have been moderating over the last 2 months after the stock rebounded nearly 90% from lows in early April after tariffs were announced. The IV percentile rank is only near the 40% level so implied volatility has come in as the stock hits all-time highs this week. This lower volatility is skewed due to the market conditions in April when uncertainty spiked. 

The options market is pricing in a +/- 6.5% move ($16.90) in the stock post earnings as of Wednesday’s closing price of $261.08.

On a technical basis, the stock is overbought with the relative strength index (RSI) at the 82 level. Any point above 70 on the RSI is considered overbought but this does not mean a pull-back is warranted. The stock is far above its 50-day Simple Moving Average of $199.71 and is reflective of the optimism in the stock. 

Despite the positive outlook, several challenges could impact Broadcom's performance. Tariff concerns and potential of chip restrictions are at the top of the list. Competition from Huawei’s AI processors is another potential risk, potentially affecting market share in the semiconductor space. With the bar high going into their quarterly report, Broadcom may have to beat earnings and raise guidance on the report to see additional gains in the near-term.