Broadcom’s 180% rally faces reality check as earnings loom

Broadcom Inc. has been tearing up the stock market this year, riding the wave of excitement around artificial intelligence. But with quarterly earnings coming out Thursday after the closing bell, there’s a big question hanging over the chipmaker: Is this as good as it gets?

Peter Sorrentino manages global growth equity strategy at Huntington National Bank. His firm owns Broadcom shares, but he’s not adding more right now. “Our fear is that it’s kind of primed for disappointment,” he said.

The numbers tell quite a story. Since bottoming out on April 4, the stock’s climbed over 180%. That puts it tenth in the S&P 500 Index for that period. It’s jumped another 35% just since September’s earnings. Wednesday? Record close.

Here’s the thing though. Broadcom’s run-up has pushed the stock into expensive territory. It’s trading around 42 times forward earnings now. The company’s 10-year average? Just 17 times. Among the Magnificent Seven tech giants, only Tesla Inc. costs more.

“We’ve got investors out a little over their skis here,” Sorrentino told Bloomberg. His team hasn’t touched their Broadcom position “in this price run over the last six months.”

Analysts project strong quarter driven by AI demand

Wall Street’s looking for $1.87 in adjusted earnings per share for the fiscal fourth quarter that wrapped up October 31. Last year same time, it was $1.42. Revenue projections point to roughly $17.5 billion compared with $14.1 billion a year back. The AI business alone should pull in about $6.2 billion, up around 68%.

Shaon Baqui tracks tech stocks at Janus Henderson Investors. Multiple portfolios there hold Broadcom. “Expectations here are obviously elevated given the recent performance, but for good reason,” he said. “They’re significantly levered to the Google ecosystem, and we all see the recent success around Gemini 3 and what Google’s been able to do.”

Beyond just the financials, investors really care about what Chief Executive Officer Hock Tan says during the earnings call.

“The investor community here has taken sort of an ‘in Hock we trust’ approach,” Baqui explained. “He manages to pull a rabbit out of the hat every quarter and surprise with something new.”

$10 billion OpenAI deal sparked last rally

How did Broadcom do last quarter? Tan dropped a bombshell. A new customer with orders worth more than $10 billion. The stock shot up 9.4% the next day, closing at a record. Another announcement like that would help ease concerns. Some analysts and investors worry about how spending’s gotten concentrated among just a handful of huge tech companies.

Ben Reitzes at Melius wrote in a December 8 note: “Strength in TPU orders should power Broadcom’s estimates higher through next year. Long-term, we would still prefer success with a diverse set of customers for Broadcom across its seven ‘hyperscale’ opportunities.”

AI grabs headlines, but Broadcom’s other operations matter. Investors want updates on software. They want to know about enterprise storage, broadband, wireless communication.

But there’s something else. The stock’s gotten so pricey that even blowout earnings might not send it higher. It could actually go the other way.

Ryuta Makino analyzes for Gabelli Funds. His take’s pretty straightforward: “Everybody’s long and maybe some people are gonna sell off just for profit taking.“