Broadcom Q3 Results: Broadcom Faces Challenges Despite AI Boom
Broadcom Inc’s (Nasdaq: AVGO) Q3 results were overshadowed by a disappointing sales forecast, highlighting weaker-than-expected performance in its non-AI divisions despite robust revenue from artificial intelligence products. Broadcom saw its stock tumble on Friday after issuing a weaker-than-expected sales forecast for the fiscal fourth quarter. The company’s forecast of approximately $14 billion in revenue fell short of analysts’ predictions, despite strong performance in its AI-related sectors.
Disappointing Q4 Forecast
Broadcom’s guidance for the fourth quarter, which concludes in October, was below the market’s expectations. Analysts had anticipated higher revenue, but Broadcom’s forecast highlights challenges in its non-AI business segments. The company expects to generate $12 billion from AI products for the full fiscal year, surpassing the average estimate of $11.8 billion.
Non-AI Business Weakness
The disappointing forecast suggests that Broadcom’s non-AI operations are growing more slowly than anticipated. Despite benefiting from increased AI spending, not all of Broadcom’s diverse business areas are seeing significant gains. This slowdown in non-AI segments has overshadowed the growth in its AI-related sales.
Broadcom Q3 /result, Sales Forecast Trigger Significant Drop in Share Price
Following the Q3 results and forecast announcement, the shares of Broadcom fell sharply. The stock dropped as much as 10% in New York trading to $137.02. This marked the largest intraday decline in a month, although the stock remains up approximately 25% for the year.
AI Boom Impact
The surge in AI spending has propelled Broadcom’s chip peer Nvidia Corp. to industry dominance, with Nvidia becoming one of the most valuable companies in tech. Nvidia’s AI accelerators are crucial for developing advanced tools like ChatGPT. Broadcom, too, has benefited from the AI boom by supplying components and software for AI infrastructure.
Diverse Revenue Streams
Broadcom provides custom chips and networking semiconductors for data centers building AI systems. The company also sells components for various applications, including cars, smartphones, and internet access devices. Its software segment includes products for mainframe computers, cybersecurity, and data center optimization.
Broadcom Q3 Results: CEO Hock Tan’s Optimism
Chief Executive Officer Hock Tan expressed cautious optimism about the company’s performance. He stated that most non-AI chip markets are recovering from their worst points. Sequential revenue growth is noted, although it remains below last year’s levels. Tan highlighted a 20% increase in bookings as a positive sign for future sales.
“In aggregate, we have reached bottom in our non-AI markets, and we’re expecting recovery in the fourth quarter,” he said on a conference call with analysts. “AI demand remains strong.”
Broadcom – Positive Q3 Results
For the third quarter, Broadcom reported a profit of $1.24 per share, excluding certain items. This result exceeded the average estimate of $1.22 per share. Revenue for the quarter reached $13.07 billion, slightly above the projected $13.03 billion. Broadcom’s substantial growth is partly due to its acquisition of VMware Inc. for about $69 billion.
Broadcom Q3 Results – Revenue Breakdown
Broadcom’s semiconductor division generated $7.27 billion in revenue for the three months ending August 4. The company’s software segment contributed $5.8 billion in sales. Despite the strong performance in these areas, the slower growth in non-AI businesses has impacted the overall forecast.
Broadcom Financial Metrics and Stock Performance
Broadcom Inc. currently boasts a market capitalization of $645.52 billion and generates a trailing twelve-month revenue of $46.82 billion. The company has reported a net income of $5.10 billion and has 4.65 billion shares outstanding. Its earnings per share (EPS) stand at $1.10, with a price-to-earnings (PE) ratio of 126.40 and a forward PE of 23.54. Broadcom offers a dividend of $2.10 per share, yielding 1.51%, with the ex-dividend date on June 24, 2024.
Trading volume is at 36,327,490, with a current opening price of $143.25 and a previous close of $152.82. The stock’s day range fluctuates between $136.60 and $143.50, while its 52-week range extends from $79.51 to $185.16. The company has a beta of 1.18 and is rated as a Strong Buy by analysts, with a price target of $186.64, representing a 34.59% potential upside. Broadcom’s next earnings report is scheduled for September 5, 2024.
Future Outlook
Looking ahead, Tan remains confident that AI will continue to drive robust results. The CEO has transformed Broadcom into a leading player in the chip industry through a series of strategic acquisitions. His approach involves acquiring dominant companies and refocusing them on their core strengths, including recent expansions into software.
AI Market Trends
Tan believes that the AI chip market will eventually shift towards custom, in-house designs. This transition could potentially benefit Broadcom, as the company helps customers develop their own chips. However, Tan did not provide a timeline for this shift, noting that it could take several years.
Key Customer Relationships
Apple Inc., a major customer, is a significant focus for Broadcom. The company supplies essential components for the iPhone. During earnings calls, Tan often discusses Broadcom’s relationship with this “North American customer.” He anticipates that next-generation Apple devices will boost Broadcom’s wireless revenue by 20% sequentially in the fourth quarter, although year-over-year growth is expected to be flat.
Acquisition Strategy
When asked about future acquisitions, Tan indicated that there are no immediate plans. He is currently focused on integrating VMware, a process expected to take up to two years. Tan’s hands-on approach to managing this integration underscores his commitment to Broadcom’s strategic goals.
While Broadcom Q3 results reflect strength in AI-driven revenue, the company’s mixed performance in other sectors underscores ongoing challenges as it navigates the evolving tech landscape. Broadcom’s sales forecast for the fourth quarter has cast a shadow over its recent achievements. While the company has seen impressive growth in its AI-related business, slower expansion in its non-AI segments has led to a significant drop in its stock price. Looking forward, Broadcom’s focus on AI and strategic acquisitions remains a key factor in its long-term growth strategy.
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