Broadcom's stock jumps on AI boom & VMware acquisition

Broadcom,a major player in the semiconductor and software industries, has reported strong financial results for the quarter ending May 5, 2024. The company’sperformance has been bolstered by surging demand for artificial intelligence (AI) products and strategic acquisitions, most notably VMware. Alongside the earnings announcement, Broadcom declared a 10-for-1 stock split, aiming to make its shares more accessible to retail investors. This company's stock has seen a 30 per cent increase this year following an almost 100 per cent rise in 2023.

AI-related products saw a significant boost, with revenues hitting $3.1 billion, up from $2.3 billion in the previous quarter, marking a 280 per cent year-over-year increase. Networking revenue also surged, rising 44 per cent to $3.8 billion, outperforming street estimates of $3.6 billion.

Broadcom has raised its full-year revenue forecast to $51 billion, up from the previous $50 billion estimate. The company now expects adjusted EBITDA to be 61 per cent of the projected revenue, an increase from the earlier forecast of 60 per cent. AI-related shipments are anticipated to generate at least $11 billion in revenue for the fiscal year, up from the prior forecast of $10 billion. CEO Hock Tan highlighted the strong demand for AI chips as a key driver for these optimistic projections.

However, the outlook for other segments is mixed. The wireless chip business is expected to see flat growth, storage-related semiconductors are projected to decline by 20 per cent(slightly better than the mid-20 per centdecline previously forecasted), broadband-related revenue is anticipated to fall in the high 30 per centrange (worse than the earlier forecast of just over a 30 per centdecline), and industrial chip revenue is now expected to drop by double digits, worse than the previous high single-digit decline projection.

Broadcom’s strategic positioning in the AI market is reinforced by its custom chip solutions for large cloud providers like Google and Meta, which are looking to reduce their dependence on Nvidia's processors. The company's robust portfolio of networking chips and custom solutions positions it well to capitalise on the growing AI data centre market.

To make its stock more appealing to retail investors, Broadcom announced a 10-for-1 stock split, effective July 15, following a similar move by Nvidia.