Broadcom (NASDAQ: AVGO) heads into Q3 earnings with a business moving faster than almost anything else in semiconductors, but I’m also looking at a stock that already knows exactly how bullish the market feels about that story.
Q2 gave us $22.19 billion in revenue and $2.44 in non-GAAP EPS, while analysts now expect $29.47 billion in revenue and $3.22 in EPS for Q3. Broadcom’s own guide calls for about $29.4 billion in revenue.
That setup leaves me in a familiar position with AVGO. I like the company enough to keep holding it, but I want to see what the market does with another monster quarter before I decide whether I want to throw more money at the stock.
Because Broadcom has already reached the stage where beating estimates alone may not move the needle.
Broadcom’s Q2 report showed just how much the AI infrastructure boom has changed the company’s earnings power, with AI semiconductor revenue reaching $10.8 billion, up 143% year over year, while management expects that figure to hit $16 billion in Q3.
That is a ridiculous jump in one quarter, and I mean that in the best possible way for shareholders.
Custom AI accelerators and networking are driving the semiconductor business, while infrastructure software continues adding another layer of revenue underneath the AI surge. Semiconductor solutions produced $15.01 billion in Q2 revenue, up 79%, while infrastructure software generated $7.18 billion, up 9%.
I keep coming back to the mix because it gives Broadcom something many AI plays don’t have. One part of the business can ride the infrastructure spending explosion while another keeps throwing off steadier revenue.
Then Apple (NASDAQ: AAPL) stepped in with another reason to take the longer view.
Apple announced a multiyear agreement with Broadcom expected to exceed $30 billion, covering custom silicon and wireless connectivity components, with more than 15 billion chips expected to come from U.S. manufacturing.
That gives me another piece of demand to watch while the AI business keeps accelerating.
Broadcom’s Free Cash Flow Makes the AI Boom More Valuable
Broadcom’s growth story would look very different if the company had to pour most of its revenue back into infrastructure just to keep up with demand, yet Q2 showed the opposite: stronger economics.
The company generated $10.49 billion in operating cash flow and spent only $231 million on capital expenditures, leaving $10.26 billion in free cash flow, equal to 46% of revenue.
That is the part of Broadcom I liked when I put it on my favorite stock list, and I still like it now. Through the first six months of the fiscal year, Broadcom generated $18.27 billion in free cash flow, giving management plenty of room to return capital while continuing to invest in the business. Adjusted EBITDA also reached 69% of revenue in Q2, while management expects roughly 68% in Q3.
So when I look at the AI spending cycle, I see a company capturing part of that spending while keeping an unusually large portion of the revenue as cash. That is why I can tolerate some volatility around earnings.
AVGO Needs a Strong AI Forecast, Not Just an Earnings Beat
The Street has already placed its Q3 revenue estimate almost directly on top of management’s guidance, which means Broadcom probably needs to give investors something beyond a routine earnings beat.
The number sitting underneath everything remains $16 billion in Q3 AI semiconductor revenue, because that target would show how quickly the custom accelerator and networking business has expanded from the $10.8 billion Q2 level.
I also want to hear what management says about the next wave of customer commitments. Broadcom’s own guidance calls for 84% year-over-year revenue growth in Q3 and adjusted EBITDA at roughly 68% of revenue.
That leaves very little room for a sloppy quarter. The market already knows the AI story, knows hyperscalers are spending, and that Broadcom is winning custom silicon programs.
What moves the stock from here is evidence that this spending can keep climbing without taking Broadcom’s economics with it.
And that is where I become a little more careful. Broadcom itself flags semiconductor cyclicality, customer concentration, supply-chain dependence and the risk that significant customers change the timing or volume of their orders.
Those risks become more important when expectations get this high.
Broadcom Stock Is Testing a Critical 200-Day Moving Average
AVGO’s chart has spent the summer trying to recover from the violent rejection that followed the June high, and the current setup gives me a reason to respect the stock rather than chase it into the print.
The shares reached roughly $495 in June before falling toward the high-$300s, then recovered toward $420 in August before sellers took control again.
AVGO now sits around $366.98, almost directly against the 200-day moving average near $369.53, while the 20-day and 50-day averages sit higher near $387.40 and $384.78.
The volume on the August 31 session was about 195.80K, telling me buyers still have work to do.
A move back above the 200-day average would give the bulls their first foothold. Reclaiming the 20-day and 50-day averages would strengthen the setup considerably, while the descending trendline from the June high remains the bigger piece of resistance overhead. What I’m looking forward to is the report telling me whether the fundamentals can drag the chart back into an uptrend.
The Case For Holding Broadcom Stock Through Earnings
With the business producing the kind of cash flow I want, I already have enough conviction in AVGO to hold through the report, and I don’t see a reason to turn that position into a pre-earnings coin toss.
If Broadcom delivers and the market sends the stock higher, I’ll still own my shares. If the market gives me a better entry after a strong report, I’ll have cash ready. Either way, I’m keeping my seat.
