We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
AVGO Expands Data Center Portfolio With Jericho4: Hold the Stock?
Read MoreHide Full Article
Key Takeaways
{\"0\":\"Broadcom is now shipping Jericho4, linking over 1M XPUs with top-tier speed, security, and scalability.\",\"1\":\"AI networking revenues surged 170% YoY, making up 40% of AVGOs AI revenue in Q2 of fiscal 2025.\",\"2\":\"Despite strong AI gains, AVGO expects lower Q3 margins due to a higher mix of lower-margin XPU products.\"}
Broadcom (AVGO - Free Report) is now shipping the Jericho4 Ethernet fabric router that has the ability to interconnect more than one million custom AI accelerators (XPUs) across multiple data centers. A single Jericho4 system scales to 36,000 HyperPorts, each operating at 3.2 Tb/s, with deep buffering, line-rate MACsec (to protect data moving between data centers), and RoCE transport of more than 100km+ distances. This enables the Jericho4 family of routers to offer unmatched bandwidth, security and lossless performance.
Jericho4 helps Broadcom offer a complete portfolio of networking solutions that includes the Tomahawk 6, Tomahawk Ultra and NICs. A strong portfolio is helping Broadcom gain market share among hyperscalers. Strong demand for AI networking revenues, which jumped 170% year over year, represented 40% of AI revenues in the second quarter of 2025, and has been a key catalyst. The company has been expanding its portfolio in recent times.
In June, AVGO announced the shipment of its Tomahawk 6, the world’s first 102.4 Terabits/sec Ethernet switch. Designed to meet the escalating demands of AI-driven data centers, Tomahawk 6 delivers double the bandwidth of its predecessor, enhancing scalability and energy efficiency. In mid-July, AVGO announced shipping of Tomahawk Ultra, its Ethernet switch, which achieves 250ns switch latency at full 51.2 Tbps throughput. Tomahawk Ultra delivers line-rate switching performance even at minimum packet sizes of 64 bytes, supporting up to 77 billion packets per second.
Strong portfolio and rich partner base are helping to drive AVGO’s prospects. Broadcom shares have risen 30.4% year to date, outperforming the Zacks Electronics Semiconductors industry’s return of 16.1% and the Zacks Computer and Technology sector’s appreciation of 10.9%. AVGO is benefiting from an expanding portfolio, rich partner base, solid VMware business, strong balance sheet and impressive free cash flow. AVGO has outperformed its peers, including Cisco Systems (CSCO - Free Report) and Marvell Technology (MRVL - Free Report) . While Cisco shares have returned 16.9% YTD, Marvell Technology shares have dropped 32%.
AVGO Stock’s Performance
Image Source: Zacks Investment Research
Solid Portfolio, Rich Partner Base to Boost AVGO’s Prospects
Broadcom is benefiting from strong demand for XPUs, which are a type of application-specific integrated chips (ASICs) necessary to train Generative AI models. They require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. In the second quarter of fiscal 2025, XPU revenues grew double digits year over year. Alphabet and Meta Platforms (META - Free Report) are notable users of Broadcom’s ASICs.
Broadcom’s rich partner base, including NVIDIA, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper and Supermicro, has been a key catalyst. These factors are expected to drive strong AI revenues. AVGO expects third-quarter fiscal 2025 AI revenues to jump 60% year over year to $5.1 billion.
Broadcom’s focus on delivering AI-powered, proactive security to stay ahead of evolving cyber threats has been noteworthy. In March, AVGO introduced updates to VMware vDefend, improving security planning, lifecycle management and scalability for VMware Cloud Foundation with new tools like the Security Segmentation Assessment and Report, optimized micro-segmentation, and advanced Network Detection and Response, all aimed at improving threat prevention and operational efficiency. In April, Broadcom introduced Incident Prediction, which extends the security feature of Adaptive Protection, a unique capability of Symantec Endpoint Security Complete.
Strong Liquidity Bodes Well for AVGO
Broadcom benefits from a strong balance sheet and its free cash-flow-generating ability. As of May 4, 2025, cash and cash equivalents were $9.47 billion, and Broadcom generated $6.55 billion in cash flow from operations. Free cash flow was $6.41 billion and accounted for 43% of revenue at the end of the second quarter of fiscal 2025.
The strong balance sheet is helping AVGO lower leverage, pay consistent dividends and return cash to shareholders through buybacks. The company recently paid off $1.6 billion of debt, resulting in gross principal debt of $67.8 billion. Broadcom paid $2.8 billion of cash dividends and purchased $4.2 billion, or approximately 25 million shares of common stock, in the second quarter of fiscal 2025.
AVGO Offers Modest Third-Quarter Guidance
Broadcom’s third-quarter fiscal 2025 guidance reflects sluggishness in server storage, wireless and industrial businesses. Third-quarter fiscal revenue guidance of $15.8 billion suggests 21% year-over-year growth but indicates modest sequential growth. Gross margin is expected to decline roughly 130 basis points sequentially, reflecting a higher mix of XPUs with AI revenues. A higher mix of lower-margin XPUs in the revenue mix is expected to keep gross margin under pressure throughout fiscal 2025.
The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at $1.66 per share, unchanged over the past 30 days, indicating 33.87% year-over-year growth.
AVGO stock is trading at a premium, as suggested by the Value Score of D.
In terms of the forward 12-month Price/Sales, AVGO is trading at 19.59X, higher than the sector’s 6.62X, Cisco’s 4.62X and Marvell Technology’s 7.22X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. These are good reasons to hold the stock for long-term investors.
However, declining gross margin, along with a challenging macroeconomic condition, doesn’t justify the premium valuation.
Image: Bigstock
AVGO Expands Data Center Portfolio With Jericho4: Hold the Stock?
Key Takeaways
Broadcom (AVGO - Free Report) is now shipping the Jericho4 Ethernet fabric router that has the ability to interconnect more than one million custom AI accelerators (XPUs) across multiple data centers. A single Jericho4 system scales to 36,000 HyperPorts, each operating at 3.2 Tb/s, with deep buffering, line-rate MACsec (to protect data moving between data centers), and RoCE transport of more than 100km+ distances. This enables the Jericho4 family of routers to offer unmatched bandwidth, security and lossless performance.
Jericho4 helps Broadcom offer a complete portfolio of networking solutions that includes the Tomahawk 6, Tomahawk Ultra and NICs. A strong portfolio is helping Broadcom gain market share among hyperscalers. Strong demand for AI networking revenues, which jumped 170% year over year, represented 40% of AI revenues in the second quarter of 2025, and has been a key catalyst. The company has been expanding its portfolio in recent times.
In June, AVGO announced the shipment of its Tomahawk 6, the world’s first 102.4 Terabits/sec Ethernet switch. Designed to meet the escalating demands of AI-driven data centers, Tomahawk 6 delivers double the bandwidth of its predecessor, enhancing scalability and energy efficiency. In mid-July, AVGO announced shipping of Tomahawk Ultra, its Ethernet switch, which achieves 250ns switch latency at full 51.2 Tbps throughput. Tomahawk Ultra delivers line-rate switching performance even at minimum packet sizes of 64 bytes, supporting up to 77 billion packets per second.
Strong portfolio and rich partner base are helping to drive AVGO’s prospects. Broadcom shares have risen 30.4% year to date, outperforming the Zacks Electronics Semiconductors industry’s return of 16.1% and the Zacks Computer and Technology sector’s appreciation of 10.9%. AVGO is benefiting from an expanding portfolio, rich partner base, solid VMware business, strong balance sheet and impressive free cash flow. AVGO has outperformed its peers, including Cisco Systems (CSCO - Free Report) and Marvell Technology (MRVL - Free Report) . While Cisco shares have returned 16.9% YTD, Marvell Technology shares have dropped 32%.
AVGO Stock’s Performance
Image Source: Zacks Investment Research
Solid Portfolio, Rich Partner Base to Boost AVGO’s Prospects
Broadcom is benefiting from strong demand for XPUs, which are a type of application-specific integrated chips (ASICs) necessary to train Generative AI models. They require complex integration of compute, memory, and I/O capabilities to achieve the necessary performance at lower power consumption and cost. In the second quarter of fiscal 2025, XPU revenues grew double digits year over year. Alphabet and Meta Platforms (META - Free Report) are notable users of Broadcom’s ASICs.
Broadcom’s rich partner base, including NVIDIA, Arista Networks, Alphabet, Dell Technologies, Meta Platform, Juniper and Supermicro, has been a key catalyst. These factors are expected to drive strong AI revenues. AVGO expects third-quarter fiscal 2025 AI revenues to jump 60% year over year to $5.1 billion.
Broadcom’s focus on delivering AI-powered, proactive security to stay ahead of evolving cyber threats has been noteworthy. In March, AVGO introduced updates to VMware vDefend, improving security planning, lifecycle management and scalability for VMware Cloud Foundation with new tools like the Security Segmentation Assessment and Report, optimized micro-segmentation, and advanced Network Detection and Response, all aimed at improving threat prevention and operational efficiency. In April, Broadcom introduced Incident Prediction, which extends the security feature of Adaptive Protection, a unique capability of Symantec Endpoint Security Complete.
Strong Liquidity Bodes Well for AVGO
Broadcom benefits from a strong balance sheet and its free cash-flow-generating ability. As of May 4, 2025, cash and cash equivalents were $9.47 billion, and Broadcom generated $6.55 billion in cash flow from operations. Free cash flow was $6.41 billion and accounted for 43% of revenue at the end of the second quarter of fiscal 2025.
The strong balance sheet is helping AVGO lower leverage, pay consistent dividends and return cash to shareholders through buybacks. The company recently paid off $1.6 billion of debt, resulting in gross principal debt of $67.8 billion. Broadcom paid $2.8 billion of cash dividends and purchased $4.2 billion, or approximately 25 million shares of common stock, in the second quarter of fiscal 2025.
AVGO Offers Modest Third-Quarter Guidance
Broadcom’s third-quarter fiscal 2025 guidance reflects sluggishness in server storage, wireless and industrial businesses. Third-quarter fiscal revenue guidance of $15.8 billion suggests 21% year-over-year growth but indicates modest sequential growth. Gross margin is expected to decline roughly 130 basis points sequentially, reflecting a higher mix of XPUs with AI revenues. A higher mix of lower-margin XPUs in the revenue mix is expected to keep gross margin under pressure throughout fiscal 2025.
The Zacks Consensus Estimate for fiscal third-quarter earnings is pegged at $1.66 per share, unchanged over the past 30 days, indicating 33.87% year-over-year growth.
Broadcom Inc. Price and Consensus
Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote
AVGO Shares Trading at a Premium
AVGO stock is trading at a premium, as suggested by the Value Score of D.
In terms of the forward 12-month Price/Sales, AVGO is trading at 19.59X, higher than the sector’s 6.62X, Cisco’s 4.62X and Marvell Technology’s 7.22X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
Broadcom’s expanding AI portfolio, along with a rich partner base, reflects solid top-line growth potential. These are good reasons to hold the stock for long-term investors.
However, declining gross margin, along with a challenging macroeconomic condition, doesn’t justify the premium valuation.
Broadcom currently carries a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.