Broadcom Inc. (AVGO) is riding high on the surge in artificial intelligence (AI) spending, but its latest earnings call revealed a more nuanced picture.
On Thursday, the chipmaker announced strong third-quarter results, exceeding Wall Street’s expectations with revenue of $13.1 billion, up 47% year-over-year, and adjusted earnings per share of $1.24, slightly above the consensus.
However, Broadcom's guidance for the fiscal fourth quarter spooked investors, leading to an 8% drop in its share price. The company projected sales of $14 billion, which, while still robust, fell short of analysts' expectations. Despite the impressive AI revenue outlook, with the company on track to generate $12 billion from AI-related products this year, concerns about weaker performance in non-AI segments weighed on investor sentiment.
Non-AI Markets Show Signs of Recovery
While AI-related products continue to power Broadcom’s growth, the company’s non-AI businesses have lagged. Revenue from the semiconductor division's non-AI networking and broadband products dropped 41% year-over-year, reflecting a broader industry slowdown. Yet, CEO Hock Tan was optimistic, stating that these segments have likely hit their low point. Bookings for non-AI products were up 20%, and Tan anticipates further recovery in the fourth quarter and into 2025.
“We have reached bottom in our non-AI markets,” Tan told analysts, hinting at a brighter future for those businesses as the company shifts focus back toward traditional markets alongside its AI push.
However, despite the strong AI outlook, the mixed Q4 guidance—coupled with underwhelming growth in non-AI divisions—has raised concerns. As a result, Broadcom’s stock tumbled to $137.02 on Friday, its worst single-day post-earnings performance.
As the AI race heats up, Broadcom’s ability to balance its AI ambitions with a recovering non-AI market will be critical. With AI spending projected to remain strong, investors are hoping the company's non-AI recovery can help sustain long-term growth and profitability.
However, Broadcom's guidance for the fiscal fourth quarter spooked investors, leading to an 8% drop in its share price. The company projected sales of $14 billion, which, while still robust, fell short of analysts' expectations. Despite the impressive AI revenue outlook, with the company on track to generate $12 billion from AI-related products this year, concerns about weaker performance in non-AI segments weighed on investor sentiment.
Non-AI Markets Show Signs of Recovery
While AI-related products continue to power Broadcom’s growth, the company’s non-AI businesses have lagged. Revenue from the semiconductor division's non-AI networking and broadband products dropped 41% year-over-year, reflecting a broader industry slowdown. Yet, CEO Hock Tan was optimistic, stating that these segments have likely hit their low point. Bookings for non-AI products were up 20%, and Tan anticipates further recovery in the fourth quarter and into 2025.
“We have reached bottom in our non-AI markets,” Tan told analysts, hinting at a brighter future for those businesses as the company shifts focus back toward traditional markets alongside its AI push.
AI Demand Remains Strong Despite Outlook Miss
AI remains the cornerstone of Broadcom's growth strategy. The company has been riding the AI wave, providing custom chips and networking solutions for data centers and large tech firms like Alphabet (GOOG). AI revenue is expected to grow by over 10% in the coming quarter, and Tan is confident that Broadcom's strategic position will keep it at the forefront of AI development.
AI remains the cornerstone of Broadcom's growth strategy. The company has been riding the AI wave, providing custom chips and networking solutions for data centers and large tech firms like Alphabet (GOOG). AI revenue is expected to grow by over 10% in the coming quarter, and Tan is confident that Broadcom's strategic position will keep it at the forefront of AI development.
However, despite the strong AI outlook, the mixed Q4 guidance—coupled with underwhelming growth in non-AI divisions—has raised concerns. As a result, Broadcom’s stock tumbled to $137.02 on Friday, its worst single-day post-earnings performance.
As the AI race heats up, Broadcom’s ability to balance its AI ambitions with a recovering non-AI market will be critical. With AI spending projected to remain strong, investors are hoping the company's non-AI recovery can help sustain long-term growth and profitability.
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