After-hours stock price plunges 7%! What's going on with AI hot stock Broadcom?
Since late June, AI concept stocks that have been on fire this year have entered a correction phase, with NVIDIA (NVDA.US), TSMC (TSM.US), and Broadcom (AVGO.US) all experiencing varying degrees of decline.
On September 5th (Eastern Time), Broadcom saw a significant after-hours drop of 6.73%, which is related to the company's latest disclosed financial performance.
Third-quarter revenue exceeded expectations, with non-AI business potentially bottoming out?
Broadcom designs, develops, and supplies a range of semiconductors, enterprise software, and security solutions, with a product portfolio that includes cloud, data center, networking, broadband, wireless technology, storage, industrial, and enterprise software. The solutions encompass service contracts and enterprise networking and storage, mobile devices and broadband connectivity, mainframes, network security, as well as private and hybrid cloud architectures.
The company's revenue primarily comes from two business segments: semiconductors and infrastructure software.
Currently, in the semiconductor field, Broadcom provides semiconductor solutions for data management and transfer in data centers, service providers, and enterprise and embedded networking applications; offers a variety of radio frequency (RF) semiconductor devices, wireless connectivity solutions, custom touch controllers, and wireless charging solutions; also provides semiconductor solutions for supporting set-top box and broadband access applications, as well as enabling the secure movement of digital data between hosts (such as servers, personal computers, and storage systems) and underlying storage devices (such as hard disk drives ("HDD") and solid-state drives ("SSD")).
Advertisement
In terms of infrastructure software, Broadcom provides customers with infrastructure software solutions that empower them to build, run, manage, connect, and protect applications at scale in diverse and distributed environments. Its mainframe software business offers DevOps, AIOps, security, and data management system solutions. Distributed software solutions enable multinational corporations to optimize the planning, development, and delivery of software. Broadcom acquired Symantec's enterprise business in 2019, providing security protection for businesses and institutions.
The financial results for the third quarter of the fiscal year 2024, disclosed after the US stock market closed on September 5th, showed that Broadcom achieved revenue of $13.072 billion, a year-over-year increase of 47%, exceeding analysts' expectations.
It is reported that the main driver of the better-than-expected revenue growth in the third quarter is still the demand for AI-related hardware and software, including the strong software business revenue brought by VMware, as well as the strong market demand for Broadcom's Ethernet switch chips. Additionally, the collaboration with tech giants like Google (GOOG.US) to create AI ASIC chips has also contributed to the robust revenue.Breaking down the business segments, in the third fiscal quarter, the semiconductor solutions business achieved revenue of $7.274 billion, a year-over-year increase of 5%, which fell short of expectations, with some analysts even calling it an unexpected slowdown.
In the third quarter, the infrastructure software business's revenue was $5.798 billion, marking a robust year-over-year growth of 200%.
It is noteworthy that in the third quarter, despite a significant increase in revenue, Broadcom's costs, as well as sales, general, and administrative expenses, and research and development expenses, also saw a substantial rise, with R&D expenses surging 73% year-over-year to $2.353 billion.
On the profit side, under GAAP accounting, Broadcom's net loss for the third quarter reached $1.875 billion, a staggering 157% year-over-year decrease, turning from profit to loss.
However, under non-GAAP accounting, Broadcom's net profit for the third quarter was $6.12 billion, representing an approximate 33% year-over-year increase. Additionally, under non-GAAP accounting, the adjusted diluted earnings per share (EPS) for the third quarter was $1.24, an 18% year-over-year increase, slightly exceeding expectations.
Broadcom also stated in its earnings report that it would distribute a quarterly cash dividend of $0.53 per share, which will be paid out subsequently. This is positive news for investors.
Regarding the performance of the third fiscal quarter, Broadcom's President and CEO, Hock Tan, stated, "The third-quarter results reflect the ongoing strength of our AI semiconductor solutions and VMware. We anticipate AI-related revenue to reach $12 billion in fiscal year 2024, driven by custom accelerators for Ethernet networking and AI data centers."
Despite continuing to distribute quarterly dividends, the fourth-quarter guidance was weak.
Broadcom's CEO, Hock Tan, said in a conference call, "AI demand remains robust." At the same time, Hock Tan also pointed out, "Most non-AI chip businesses are either at or have passed their worst period, and we expect a recovery in the fourth quarter."
However, the fourth-quarter performance guidance provided by Broadcom in its earnings report was rather weak, which is also seen as the reason for the significant drop in the share price after hours.Broadcom stated that, based on current business trends and environment, it expects fourth-quarter revenue to be approximately $14 billion, including the contribution from the acquisition of VMware at the end of last year, which is below analysts' expectations; the guided value of adjusted EBITDA for the fourth quarter is about 64% of the expected revenue.
Some analysts believe that Broadcom's fourth-quarter guidance indicates that the growth rate of its non-AI business is still lower than expected, which is a sign of weak demand in the non-AI sector.