After a 180% increase, can Broadcom Inc. (AVGO.US) hold up its 42 times price-earnings ratio ahead of its financial report exam?

Broadcom Inc. (AVGO.US) is one of the hottest stocks in the market this year, mainly due to the market's enthusiasm for products related to artificial intelligence. However, as the company is set to announce its quarterly earnings after the market close on Thursday, investors are contemplating whether this enthusiasm is enough to continue driving its stock price higher. Peter Sorrentino, global growth stock strategist at Huntington National Bankshares, Inc., said, "We are concerned that market expectations may be too high, leading to potential disappointment." The bank holds shares of Broadcom Inc. Since hitting bottom on April 4th, the stock price of the chip manufacturer has surged over 180%, making it the tenth best-performing component stock in the S&P 500 during the same period, and has risen by 35% since the company's last earnings report in September. Its stock price closed at a record high on Wednesday. The market's enthusiasm is driven by Broadcom Inc.'s customized chips for clients such as Alphabet's Alphabet Inc. Class C, which play a key role in artificial intelligence data center construction. While other infrastructure stocks - including NVIDIA Corporation, Oracle Corporation, and AMD - have been struggling, Broadcom Inc. has achieved this feat. But this has also pushed Broadcom Inc.'s stock valuation to a historical high, with its expected price-to-earnings ratio at around 42 times, compared to its 10-year average price-to-earnings ratio of only 17 times. Currently, Broadcom Inc.'s valuation is higher than all companies in the "tech seven giants" except Tesla, Inc. Sorrentino said, "Investor enthusiasm may have gone too far." He noted that his company "has not added to Broadcom Inc. shares" during this rally over the past six months. Analysts expect adjusted earnings per share of $1.87 for the fourth quarter ending on October 31, higher than the $1.42 in the same period last year. Revenue is estimated to increase to about $17.5 billion, compared to $14.1 billion in the same period last year. It is estimated that about $6.2 billion in revenue this quarter will come from its artificial intelligence division, a 68% increase year-over-year. "Given the recent performance, market expectations are clearly high, but there are valid reasons for this," Shuang Baqi, a technology research analyst at Junsen Henderson Investment Company, said. The company holds Broadcom Inc. shares in several portfolios. "The company is highly tied to the Alphabet Inc. Class C ecosystem, and we have all seen the recent success of Gemini 3 and the performance of Alphabet Inc. Class C." In addition to the data, investors like Baqi will be most interested in what CEO Tan Fu-yang has to say during the company's earnings conference call. "Investors take a 'we believe in Tan Fu-yang' approach here," Baqi said, "he manages to pull a rabbit out of the hat every quarter, bringing surprises with new things." Last quarter's surprise was a new customer bringing in orders worth over $10 billion. The day after the earnings report was released, the stock price surged by 9.4%, closing at a new high. Announcing another new customer should alleviate some analysts' and investors' concerns, as they are increasingly worried about the massive spending by a few very large companies. "The strong demand for TPUs should continue to drive Broadcom Inc.'s performance expectations higher next year. In the long run, we still hope that Broadcom Inc. can succeed in a series of different customers in its seven 'mega-scale' opportunities," Melius analyst Ben Reitz wrote in a report on December 8th. Additionally, while artificial intelligence is currently the focus of attention, signs of recovery in Broadcom Inc.'s other businesses are equally important to Wall Street. Investors will be watching for the latest developments in software, enterprise storage, broadband, and wireless communication businesses. However, no matter what the company says or reports, Broadcom Inc.'s hot stock market valuation may have reached a tipping point: even if performance exceeds expectations, it could become a reason for market sell-off due to "good news being priced in." "Now everyone is long, and some people may sell their stocks for profit-taking," said Ryutaro Maki, an analyst at Gabelli Funds.