The company has benefitted in the past year from strong consumer spending on technology items and increased corporate spending on upgrading IT infrastructure. Recent semiconductor production issues have also contributed to increased pricing power.
Inside the Numbers
In Q2, Broadcom reported EPS of $6.62 per share which is a 30% increase from 2020's Q2. It also topped analysts' expectations of $6.41 per share. Revenue also beat at $6.6 billion vs expectations of $6.5 billion. This was a 15% increase in revenue compared to the same quarter last year.
The biggest driver was chip sales which increased by 20% to $4.82 billion, while infrastructure software sales grew by 4% to $1.8 billion. Both figures came in slightly above forecasts of $4.7 billion and $1.78 billion, respectively.
Q3 guidance also came in above consensus expectations on strong demand from service providers and cloud computing. The company expects $6.75 billion in revenue, while analysts were looking for $6.6 billion.
Stock Price Outlook
We are seeing remarkable strength in the semiconductor industry as several companies have posted impressive earnings and hiking guidance for the next quarter and full year. While many tech stocks remain unattractive despite recent losses due to valuation concerns, semiconductors are an exception.
Many of these stocks remain fairly valued despite gains in their stock prices as earnings and revenue were rising in tandem. For example, Broadcom has a forward price to earnings ratio of 16 which is cheaper than the S&P 500
Since mid-February, semiconductors have underperformed the market as they became ensnared in the tech selloff. However, this is creating an opportunity for traders and investors as earnings and revenue growth have continued with little indication of it slowing. In fact, the tightness in semiconductors is expected to persist until the end of next year.