TLDR:
- Broadcom forecasts Q4 revenue slightly below expectations at $14 billion
- AI chip revenue forecast raised to $12 billion for fiscal 2024
- Broadband and non-AI networking segments show weakness
- VMware acquisition boosting infrastructure software revenue
- JPMorgan raises price target to $210, maintaining Overweight rating
Broadcom, the California-based chipmaker, recently reported its third-quarter results for fiscal 2024, revealing a complex picture of growth and challenges across its various business segments.
The company’s performance highlights the current state of the semiconductor industry, where artificial intelligence (AI) is driving significant growth while traditional sectors face headwinds.
AI Growth Accelerates
Broadcom’s AI-related revenue continues to be a bright spot for the company. The chipmaker raised its forecast for annual AI revenue to $12 billion, up from its earlier expectation of $11 billion. This threefold increase year-over-year demonstrates the robust demand for Broadcom’s custom chips and AI networking equipment. The company’s AI revenue, which includes ASICs, networking, and PCIe products, grew to $3.2 billion in the July quarter and is expected to accelerate further in the coming months.
Traditional Segments Face Challenges
While AI-related business is booming, Broadcom reported weakness in its traditional segments. The company’s broadband revenue declined by 49% in the reported quarter, while non-AI networking fell by 41%. These declines offset the strong performance in the AI segments, contributing to a mixed overall picture for the company.
VMware Acquisition Pays Off
Broadcom’s push into enterprise software appears to be paying dividends, primarily due to the contribution from VMware. The company’s infrastructure software revenue tripled in the third quarter, indicating that the VMware acquisition is already having a significant positive impact on Broadcom’s business mix.
Financial Results and Outlook
For the third quarter, Broadcom reported revenue of $13.07 billion, surpassing analyst expectations. However, the company posted a GAAP net loss of $1.88 billion, largely due to a one-time non-cash tax provision of $4.5 billion related to an intra-group transfer of intellectual property rights.
Looking ahead, Broadcom forecasts fourth-quarter revenue of around $14 billion, slightly below Wall Street expectations of $14.04 billion. Despite this, the company raised its full-year revenue forecast to $51.5 billion from its prior expectation of $51 billion.
Market Reaction and Analyst Views
The market’s initial reaction to Broadcom’s results was negative, with shares falling over 10% in pre-market trading. However, several analysts remain optimistic about the company’s prospects. JPMorgan, for instance, raised its price target for Broadcom to $210 from $200, maintaining an Overweight rating on the stock.
Analysts noted that while Broadcom’s results may not match the explosive growth seen by companies like Nvidia in the AI space, the company is still benefiting significantly from industry AI adoption. The consistent dividend growth and strong gross profit margins also contribute to a positive long-term outlook for the company.
