Broadcom Comfortably Beat Consensus on Income in Its Quarterly Results, but Guidance Disappointed

Broadcom (AVGO) beat consensus on its freshly published quarterly results, but its guidance of up to $90 billion in sales of custom AI chips by 2027 appears to have sent investors into a blues. Shares jumped 19% in early trading, pushing its valuation above $1 trillion, but then retreated.

For the quarter ended Nov. 3, the Palo Alto-based semiconductor company reported adjusted earnings per share (adj. EPS) of $1.42, compared with a consensus estimate of $1.39. The company also posted revenue of $14.05 billion, compared with a consensus estimate of $14.06 billion.

Semiconductor sales rose to $30.1 billion, driven by $12.2 billion in AI sales. AI revenue grew 220% YoY, driven by our leading AI XPU and Ethernet networking portfolio. On our view, Broadcom remains a buy relative to its main rival, visibly overvalued Nvidia (NVDA), but we suggest to watch carefully the slowly shrinking sales, even though margins remain healthy.

During the conference call, the speakers outlined that “…Broadcom's fiscal 2024 revenue grew 44% YoY to a record $51.6 billion, driven by the successful integration of VMware and infrastructure software revenue increased to $21.5 billion”. CEO Hock Tan also said the available market for custom AI accelerators (XPUs) “will reach $60 billion to $90 billion in fiscal 2027 alone.”