Broadcom Surges 4.8% on Record AI Chip Revenue and Stunning Q2 Outlook
Broadcom Inc. (NASDAQ: AVGO) delivered a powerful signal to the market on Thursday that appetite for artificial intelligence infrastructure
Quick overview
- Broadcom Inc. reported record first-quarter sales of $19.31 billion, driven by a 106% increase in AI semiconductor revenue to $8.4 billion.
- The company provided exceptional Q2 guidance, anticipating $22 billion in revenue, significantly surpassing Wall Street's expectations.
- Broadcom's acquisition of VMware continues to positively impact results, with VMware reporting a 13% increase in Q1.
- The board approved a $10 billion share repurchase program, further boosting investor confidence in the company's financial future.
With record first-quarter sales of $19.31 billion and guidance that sent Wall Street analysts scrambling to raise their price targets, Broadcom Inc. (NASDAQ: AVGO) sent a strong message to the market on Thursday that demand for artificial intelligence infrastructure is still strong. Even while the overall market faltered, with the Dow Jones Industrial Average down more than 1.6% in the same session, shares rose 4.8% to close at $332.74.
AI Chip Demand Smashes Records
By any standard, the headline numbers from Broadcom’s fiscal first quarter, which concluded on February 1, were impressive. Total revenue exceeded analyst projections of $19.28 billion, growing by 29% year over year. The true story, however, was hidden in the AI segment: the company’s dominant position in the custom chip industry was highlighted by a 106% year-over-year increase in AI semiconductor revenue to $8.4 billion.
On an adjusted basis, earnings per share were $2.05, which was 28% higher than the previous year and somewhat higher than the $2.03 consensus projection. The demand environment is getting more intense, according to CEO Hock Tan.
With its bespoke accelerators, or XPUs, Broadcom now has six customers for AI chips. Alphabet’s Google, Meta Platforms, Anthropic, and OpenAI are among them; two other clients have not yet been made public. According to analysts, Apple, ByteDance, Fujitsu, or SoftBank might fill the remaining positions.
Broadcom (AVGO) Q2 Guidance Stuns the Street
The guidance was exceptional, even if the quarterly results were good. Broadcom anticipated $22 billion in revenue for the second quarter, which is a 47% year-over-year increase and is about $1.5 billion more than the $20.44 billion Wall Street had forecast. In Q2, the revenue from AI semiconductors alone is predicted to exceed $10.7 billion, a 140% rise from the previous year.
Kevin Cassidy, an analyst at Rosenblatt Securities, referred to the company’s goal of generating over $100 billion in revenue from AI semiconductors in fiscal year 2027 as a “mic-drop moment.” According to Broadcom, it has acquired enough manufacturing space to satisfy demand through 2028.
Immediately, a number of commentators questioned if the $100 billion goal was truly bold enough. Timothy Arcuri, a UBS analyst, increased his own estimate of the value of AI chips in fiscal 2027 to above $130 billion. When networking income is taken into account, the figure may rise to $150 billion, according to Barclays analyst Tom O’Malley. Blayne Curtis, a Jefferies analyst, increased his fiscal 2027 projection even further.
VMware Acquisition Continues to Pay Off
In addition to chips, Broadcom’s 2023 acquisition of VMware, a leader in virtualization and cloud computing, continued to have a significant impact on outcomes. VMware reported a 13% increase in Q1, with a total contract value of $9.2 billion. Instead than worrying that AI would disrupt enterprise software, management claimed that as businesses develop private and hybrid cloud environments, AI is actively promoting VMware usage.
AVGO Stock Buybacks Add to Investor Appeal
The board of Broadcom approved a new $10 billion share repurchase program, which will run through the end of the year, to complete the company’s impressive results package. The action provided more support for the stock’s upward movement and reaffirmed management’s faith in the company’s financial future.
Broadcom (AVGO) Stock Valuation: Rich but Defensible
Valuation is still a major concern for investors despite a 72% increase over the previous year. At the moment, Broadcom’s price-to-earnings ratio is about 63x, which is higher than the average for the semiconductor industry, which is about 43x, but lower than other high-growth peer comparisons. According to discounted cash flow analysis, the stock is neither significantly discounted nor excessively overpriced at this price, with an estimated fair value of $340 per share, which is close to current trading levels.
Following the report, at least eleven Wall Street analysts increased their price estimates. UBS set a target of $475, while Rosenblatt raised its aim to $500. After Thursday’s advances, the stock moved back above its 200-day moving average.
Regardless of which models or applications ultimately prevail in the larger AI race, Broadcom looks to be well-positioned as one of the key infrastructure plays in the AI build-out thanks to strengthening relationships with six AI hyperscalers, a VMware integration that added cloud infrastructure revenue, and guidance that far outperformed consensus estimates.
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