Broadcom Inc. (AVGO) shares advanced roughly 3% in late trading Monday, reaching $459.97, as investors positioned themselves ahead of the company's fiscal second-quarter earnings report. The results, due after the market close on Wednesday, June 3, are widely viewed as a critical test of the chipmaker's ability to sustain its impressive AI-driven growth trajectory.
Options market activity suggests significant volatility is expected around the earnings release. Contracts tracked by traders indicate the stock could swing as much as 9% in either direction by the end of the week. Based on Friday's record close, this implies an upper target of $487 or a lower floor near $406.
AI Sales Momentum in Focus
Broadcom reported in March that its first-quarter AI revenue surged 106% year-over-year to $8.4 billion, fueled by robust demand for custom AI accelerators and networking equipment. The company guided for $10.7 billion in AI chip revenue in the second quarter, with total revenue expected around $22.0 billion, a 47% increase from the prior year. Adjusted EBITDA is projected at approximately 68% of revenue.
CEO Hock Tan has emphasized that AI sales are being driven by strong demand for custom AI ASICs—chips tailored for specific workloads—and AI networking gear. Management's outlook through 2027 remains a key focus, with Tan previously stating that Broadcom sees over $100 billion in AI chip revenue potential by that year.
Analyst Optimism and Risks
Analysts have been raising their price targets ahead of the earnings report. HSBC increased its target to $600 from $450, while Morgan Stanley moved to $485 from $470. Susquehanna also upped its target to $490 from $450 on May 28. The consensus among 47 analysts remains a strong "Buy," with an average target price of $485.72.
However, risks remain. Susquehanna's Christopher Rolland noted ongoing strength in Broadcom's ASIC business but flagged potential headwinds from lower short-term outlook. Initial shipments of Anthropic-related TPUs (tensor processing units) could boost chip revenue but may not fully translate into higher rack-level revenue. Any disappointment in AI orders or forward guidance could pressure the stock, especially given its recent run-up near consensus targets.
Broader Market Context
Broadcom's performance is closely tied to the broader AI chip sector. Nvidia (NVDA) shares jumped 6.3% late Monday, while Marvell Technology (MRVL) added 7.0%. The iShares Semiconductor ETF (SOXX) rose 0.5%, indicating strong sector-wide momentum.
Broadcom is positioning itself differently from Nvidia, focusing on custom chips and networking equipment for large tech firms rather than general-purpose AI accelerators. This strategy has resonated with investors, though the company's infrastructure software unit, which generated $6.8 billion in Q1 revenue (about 35% of total sales), saw only 1% year-over-year growth. Any signs of weakness in VMware integration, customer delays, or softening AI orders could weigh on shares.
With the stock trading at a premium and expectations high, Wednesday's report will be pivotal. A revenue beat coupled with a strong forecast could propel shares higher, while any hint of demand softening from key customers like Anthropic, OpenAI, Google, or Meta might trigger a selloff.
