Broadcom (NASDAQ: $AVGO), one of the key players in the infrastructure software solutions and semiconductor sectors, released its third quarter results on Thursday after markets closed. Here is a breakdown of the results and their implications for the chip sector.
Broadcom Beats Estimates in Q3 Results
In the third quarter results, Broadcom reported an EPS of $1.24, narrowly beating analysts’ forecast of $1.20, and above last year’s third quarter EPS of $1.05, an 18% rise. The company’s revenue came in at $13.07 billion, narrowly beating estimates of $12.98 billion and rising 47% year over year.
Its double-digit increase in revenue was attributed to its VMware acquisition in November 2023.
Other Financial Highlights
In the third quarter, the company reported $4.96 billion in cash from operations and $172 million in capital expenditures. It paid a cash dividend of $0.52 per share for a total payout of $2.45 billion.
The company announced a ten-for-one forward stock split on July 12, 2024, and all dividends were retroactively adjusted to reflect the split.
Commenting on the results, Broadcom CEO Hock Tan said, “Broadcom’s third-quarter results reflect continued strength in our AI semiconductor solutions and VMware.”
Broadcom Issues Disappointing Outlook
Broadcom forecasted $14 billion in revenue, a 51% year-over-year increase, but below analysts’ estimate of $14.11 billion.
Broadcom Stock Performance
Broadcom (AVGO) has been one of the top performers in 2024, adding over $200 billion to its valuation thus far. Year to date, it is up 40.80% and 75.19% in the past 12 months as of Thursday’s closing price. Following the guidance miss, the stock slumped 7.54% during pre-market trading to 141.32 as of &:56 AM EDT.
Analysts are optimistic about its future, giving it a strong buy rating. They forecast a broad range for the stock, with a high of $240 and a low of $170. Their average forecast of $198.66 is a 30% upside from Thursday’s closing price of $152.82.
Broadcom’s Results And The Chip Industry
Broadcom’s surge in 2024 has been driven by a rise in demand for its networking chips. These chips are critical to the development of AI models. They are used to enhance the speed of large data models that are connected via nodes.
It is also a leading maker of ASIC chips, which are critical in helping hyperscalers move large amounts of data through ICs, which boosts the speed and reliability of data processing.
In the third quarter, the company reported $7.27 billion in semiconductor sales, a 5% year-over-year rise. It now forecasts $12 billion from the sale of custom chips and other AI hardware in fiscal 2024, up from a forecast of $11 billion.
The third quarter results showed a strong upside in the software business, but the semiconductor industry, outside of AI, was not as strong as expected.
The chip industry has not performed well in 2024 outside of AI. Demand from crucial sectors like autos and industrials has weakened, while memory has slowed down from earlier in the years. As such, investors are not as optimistic as they were about the chip industry’s future performance.
Should You Invest In Broadcom?
The company has been a pillar of growth and financial health in the past 12 months. Its revenue is up 47% year over year and is expected to rise by 51% in the fourth quarter. Additionally, the company has an impressive record when it comes to shareholder returns, returning $2.45 billion to investors in the third quarter.
Based on its impressive Q3 results and optimistic forecast for AI chip demand, adding AVGO to your portfolio could potentially yield positive results in the short term.
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