Broadcom Q3 AI Revenue Up 200%, Stock Drops 7%

On September 5th, after U.S. stock market hours, Broadcom Inc. released its financial results for the third quarter ending August 4. Although the company surpassed Wall Street's revenue expectations, its outlook for Q4 revenue fell short, leading to a nearly 7% decline in its stock during after-hours trading.

For Q3, Broadcom reported revenues of $13.07 billion, a 47% year-over-year increase, exceeding the market's forecast of $12.97 billion. On a non-GAAP basis, the company achieved a net income of $6.12 billion, up about 33% from the previous year, with adjusted earnings per share (EPS) of $1.24, surpassing the expected $1.20 per share.

Under GAAP accounting, Broadcom posted a net loss of $1.875 billion for Q3, compared to a net profit of $3.303 billion in the same quarter last year. This loss includes a one-time tax reserve of $4.5 billion related to the transfer of intellectual property to a U.S.-based division as part of a supply chain management strategy.

In terms of business segments, the "Semiconductor Solutions" division, which focuses on chip sales, generated $7.274 billion in revenue, up 5% year-over-year, but this was below the market expectation of $7.42 billion. Conversely, revenue from VMware and other infrastructure software soared to $5.798 billion, a 200% increase year-over-year and a 175% quarter-over-quarter growth, exceeding market expectations and setting a new record.

Broadcom's strong performance was driven by robust demand in the data center market. Data center providers rely on Broadcom's custom chip designs and networking semiconductors for their AI systems. Additionally, Broadcom continues to supply components for automotive, smartphones, and connected devices, while expanding into software for large-scale computing, cybersecurity, and data center optimization.

Notably, Broadcom's custom AI chip business is a significant revenue contributor. Previously, Broadcom collaborated with Google on TPU chips, which Apple has used for AI training. Reports also suggest that Broadcom may team up with OpenAI to develop its own AI chips.

Despite the impressive overall revenue and EPS growth, the semiconductor solutions segment, including custom AI chips, experienced a slowdown in revenue growth, decreasing from 6% in the previous quarter to 5%.

Broadcom CEO Hock Tan remarked that the strong third-quarter performance reflects continued strength in AI semiconductor solutions and VMware, alongside a recovery in non-AI business areas. AI-related revenue reached approximately $3.1 billion for Q3, a 200% increase from the previous year, and is expected to reach $12 billion for the full year 2024, surpassing previous forecasts.

Looking ahead, Broadcom remains optimistic about sustained strength in its AI business, a rebound in non-AI sectors, and accelerated growth in VMware. The company projects full-year 2024 revenue of $14 billion, a 51% increase from 2023. However, with a market expectation of $14.1 billion and no long-term financial guidance provided, Broadcom's stock saw a decline after-hours. Nonetheless, Hock Tan emphasized continued robust growth in AI revenue through 2025.