In the face of mounting pressure, Broadcom Inc. is set to release its earnings report on Thursday, with all eyes on the company's ability to demonstrate that demand for artificial intelligence (AI) will counterbalance the decline in computer and telephone sales. With shares soaring over 50% since its last quarterly report, the stakes have significantly increased for the Palo Alto-based tech firm.

Notably, Advanced Micro Devices Inc. and Super Micro Computer Inc. have witnessed surges in their stock prices due to growing expectations surrounding the demand for AI computing hardware. As Broadcom's shares climbed as much as 3.7% during intraday trading, investors are closely scrutinizing the company amid concerns that the current market rally may resemble a bubble rather than an early sign of a significant growth cycle. Any signs of weakness from Broadcom could trigger a sell-off, affecting the broader tech stock market.

David Klink, senior equity analyst at Huntington National Bank, acknowledged the high expectations for Broadcom and similar companies that have benefitted greatly from the AI hype cycle. Furthermore, options data suggests a potential stock swing of 7% in either direction, marking Broadcom's most substantial post-earnings move since 2021.

Broadcom's market capitalization even surpassed that of Tesla Inc. last week, and its shares are currently trading near an all-time high. Wall Street analysts anticipate a more than 30% surge in first-quarter 2024 revenue, amounting to $11.8 billion, compared to the previous year. Investors are also eager to hear about Broadcom's forward guidance and hope to receive reassurances regarding the company's strong relationships with chip customers.

Chief Investment Officer at The Bahnsen Group, David Bahnsen, emphasized the importance of examining Broadcom's outlook for the future rather than focusing solely on quarter-to-quarter performance. Additionally, investors are seeking updates on Broadcom's VMware acquisition and its other business ventures beyond chipmaking.

While some investors view Broadcom's diverse range of acquisitions as protection against an AI-driven market downturn, others believe it may limit the company's potential gains as the rally continues. Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, expressed doubts about the strength of Broadcom's ties to AI, stating that it may not be sufficient to sustain the company compared to more growth-oriented AI-focused companies.

Despite concerns, bulls point to Broadcom's attractive valuation. Trading at approximately 28 times forward earnings, it appears cheaper than AI peers such as Nvidia (trading at 37 times forward earnings) and AMD (at about 54 times forward earnings). However, some analysts warn that once the AI fervor dies down, attention will shift to Broadcom's other lines of business.

In the broader semiconductor market, options trading has been booming as investors bet on the growing prominence of AI. Daily average notional volume in single stock puts and calls for members of the Philadelphia Semiconductor Index surpassed $145 billion in February, marking a doubling since the end of 2023 and seven times higher than a year earlier.

As the earnings release approaches, Broadcom faces the challenge of convincing investors that their AI demand can offset weakened computer and telephone sales. The outcome of the report is likely to have a significant impact on Broadcom's stock performance and could potentially influence the broader tech market.