No Surprises In Broadcom's (NASDAQ:AVGO) Q2 Sales Numbers, Provides Encouraging Quarterly Guidance

Petr Huřťák /
2023/06/01 4:19 pm EDT

Fabless chip and software maker Broadcom (NASDAQ:AVGO) reported results in line with analyst expectations in Q2 FY2023 quarter, with revenue up 7.77% year on year to $8.73 billion. Guidance for next quarter's revenue was $8.85 billion at the midpoint, which is 1.58% above the analyst consensus. Broadcom made a GAAP profit of $3.48 billion, improving on its profit of $2.59 billion, in the same quarter last year.

Is now the time to buy Broadcom? Access our full analysis of the earnings results here, it's free.

Broadcom (AVGO) Q2 FY2023 Highlights:

  • Revenue: $8.73 billion vs analyst estimates of $8.71 billion (small beat)
  • EPS (non-GAAP): $10.32 vs analyst estimates of $10.14 (1.75% beat)
  • Revenue guidance for Q3 2023 is $8.85 billion at the midpoint, above analyst estimates of $8.71 billion
  • Free cash flow of $4.38 billion, up 11.4% from previous quarter
  • Inventory Days Outstanding: 66, down from 73 previous quarter
  • Gross Margin (GAAP): 70%, down from 75.9% same quarter last year

"Broadcom's second quarter results were driven by demand for next generation technologies from hyperscale, while enterprise and service providers continued to sustain," said Hock Tan, President and CEO of

Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate that spans wireless, networking, data storage, and industrial end markets along with an infrastructure software business focused on mainframes and cybersecurity.

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Broadcom's revenue growth over the last three years has been mediocre, averaging 15.4% annually. And as you can see below, last year has been in line with that, with quarterly revenue growing from $8.1 billion to $8.73 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Broadcom Total Revenue

While Broadcom beat analysts' revenue estimates, this was a very slow quarter with just 7.77% revenue growth. This was the third straight quarter of decelerating growth for Broadcom, potentially indicating a coming cycle downturn.

While revenue growth has decelerated the past three quarters, Broadcom thinks growth will remain positive next quarter guiding to estimated 4.56% year on year growth and Wall Street analysts' consensus also sees growth over the next twelve months of 2.95%.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Broadcom Inventory Days Outstanding

This quarter, Broadcom’s inventory days came in at 66, 4 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Broadcom's Q2 Results

With a market capitalization of $337 billion, more than $11.6 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were very impressed by the strong improvements in Broadcom’s inventory levels. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 1.43% on the results and currently trades at $778.05 per share.

Should you invest in Broadcom right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.