Broadcom's stock falls, with AI set for stronger showing as other areas sag

By Emily Bary

Shares drop in the extended session after a strong recent rally

Broadcom Inc. shares have rocketed some 50% over the past three months upon enthusiasm for the company's ability to capitalize on artificial-intelligence spending, but the stock's momentum was set to cool a bit after Broadcom's latest results.

Shares of Broadcom (AVGO) were off about 3% in after-hours trading Thursday after the company suggested that AI portions of the business were performing better than expected while other areas were seeing weakness. For the full fiscal year, Broadcom maintained its revenue outlook of about $50 billion.

"We told you in December our revenue from AI would be 25% of our full-year semiconductor revenue," Chief Executive Hock Tan said on the earnings call. "We now expect revenue from AI to be much stronger, representing some 35% of semiconductor revenue at over $10 billion, and this more than offsets weaker-than-expected demand in broadband and server storage."

Marvell Technology Inc. (MRVL) also put out results and forecasts Thursday that highlighted robust AI performance but challenges elsewhere in their business.

Overall revenue for the fiscal first quarter, Broadcom's latest, rose 34% to $11.96 billion, whereas analysts tracked by FactSet had been modeling $11.80 billion.

"Strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment," Tan said in a release.

On the earnings call, Broadcom said that AI revenue within its semiconductor business quadrupled from a year earlier to $2.3 billion. That performance more than outweighed cyclical slowdowns that Broadcom is seeing in its enterprise and telecommunications businesses.

Tan said that broadband is in a "cyclical trough," and management doesn't expect improvement until late this year.

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Broadcom's semiconductor-solutions business increased revenue by 4% to $7.39 billion but slightly trailed the FactSet consensus, which was for $7.46 billion.

Bernstein analyst Stacy Rasgon noted ahead of the report that the latest quarter was Broadcom's first to fully include results from VMware. That, along with what he said was a "hopefully temporary" shift to annual guidance from quarterly forecasts, could make the fiscal first-quarter report "a little messy," he wrote.

For example, Broadcom's software-segment revenue grew 156% to $4.6 billion, but just under half of that came from VMware.

Net income for the latest quarter came in at $1.33 billion, or $2.84 a share, compared with $3.77 billion, or $8.80 a share, in the year-earlier period. On an adjusted basis, Broadcom earned $10.99 a share, whereas the FactSet consensus was for $10.40 a share.

See also: Micron's stock gets new buy call as it's deemed another chip-sector play on AI

Broadcom ranks ninth in the S&P 500 SPX by market capitalization, with a roughly $650 billion valuation. The company sits solidly above Tesla Inc. (TSLA) but below Eli Lilly & Co. (LLY).

-Emily Bary

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03-07-24 2022ET

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