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Home Stock Analysis AI-powered Broadcom (AVGO) is set for a record year

AI-powered Broadcom (AVGO) is set for a record year

by xyonent
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Broadcom Q2 2024 Earnings Infographic.jpg

Broadcom Inc. (NASDAQ: AVGO), a diversified semiconductor and software company, reported another strong quarterly result and raised its guidance, helped by surging demand for AI chips and increased revenue contribution from VMware, which it acquired last year.

Strong second-quarter results have sent shares soaring, with the stock price hitting a new record. AVGO, one of Wall Street’s most expensive and best-performing stocks, has risen a staggering 40% in the past two months alone. The stock has nearly doubled in the past 12 months, and the company has a track record of returning value to shareholders, primarily through its dividend program. Regular dividend hikes (most recently up 14%) and an above-average yield make the stock a good long-term investment.

evaluation

With a significantly expanded portfolio of AI chips, the company is on a high growth trajectory, signaling continued strong value creation for shareholders. However, the high valuation calls for careful evaluation before investing. Meanwhile, management announced a 10-for-1 stock split to make Broadcom shares more accessible to investors.

The company expects AI chip sales to surge in the second half of the year and sees AI revenue reaching about $11 billion in fiscal 2024. Infrastructure software revenue is expected to grow at an accelerated pace, driven by VMware, while non-AI semiconductor revenue is expected to recover from a recent slowdown and gain momentum toward the end of the year.

Bullish outlook

Management raised its full-year total revenue guidance to $51 billion. The revised outlook for adjusted EBITDA as a percentage of revenue was raised to 61% from 60% previously. Networking revenue is expected to grow at a 40% pace, faster than the previous forecast of 35%. VMware integration is progressing, with a focus on moving to a subscription licensing model and simplifying go-to-market flows.

Broadcom CEO Hock Tan said in the earnings call: “As AI datacenter cluster deployments increase, it’s interesting to see our revenue mix shift towards an increased share of networking. We’ve doubled the number of switches sold year over year, especially the Tomahawk 5 and Jericho3, which we’ve successfully deployed in close collaboration with partners such as Arista Networks, Dell, Juniper and Supermicro. Additionally, we’ve doubled our shipments of AI backend fabric PCI Express switches and NICs.”

Exceeding second quarter expectations

Broadcom reported adjusted earnings of $10.96 per share for the April quarter, up from $10.32 per share in the same period last year. The bottom line beat expectations, having beaten expectations every quarter since the start of fiscal 2020. On an adjusted basis, second-quarter net income was $2.12 billion, or $4.42 per share, down compared with $3.48 billion, or $8.15 per share, in the second quarter of 2023. April-quarter revenue was $12.49 billion, down compared with $8.73 billion in the same period a year ago. Revenue beat Wall Street expectations and continued a long-term trend.

Broadcom shares surged Friday afternoon, continuing a post-earnings uptrend, and are well above their 52-week average so far this year.

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