Broadcom Inc. (AVGO) shares took a tumble on Friday despite the company reporting impressive third-quarter earnings that surpassed market expectations. While the company’s financial performance was strong, some analysts believe the company’s guidance could have been more optimistic, leading to market hesitation.
Broadcom reported revenue of $13.072 billion, surpassing analyst estimates of $12.96 billion, marking a substantial 42% increase compared to the previous year. Earnings per share (EPS) also beat expectations, coming in at $1.24 against the forecasted $1.20. This robust performance was driven by strong demand for Broadcom’s AI semiconductor solutions, highlighting the company’s strategic focus on this rapidly growing market.
Broadcom’s AI business continues to gain momentum, demonstrating quarter-over-quarter growth of 3%-4% in the July quarter. This AI-driven surge is further complemented by strength in Broadcom’s non-AI semiconductor segment, which is projected to experience a 10% growth in the upcoming quarter.
The recent acquisition of VMware by Broadcom has also played a significant role in the company’s success, with infrastructure software revenue surging 41% in the third quarter. This acquisition has strengthened Broadcom’s position in the enterprise software market and further diversified its revenue streams.
Despite these positive developments, some analysts expressed caution regarding the company’s guidance, suggesting it could have been more aggressive. This cautious approach is likely influenced by uncertain market conditions and potential economic headwinds. Nonetheless, major firms, including Benchmark, Goldman Sachs, Morgan Stanley, and Cantor Fitzgerald, have maintained their Buy or Overweight ratings on Broadcom stock.
Despite the positive financial results, Broadcom’s share price plummeted by 9.7% in premarket trading, closing at $138.00. This selloff is surprising considering the company’s strong financial performance and promising outlook. However, it reflects market sentiment and investors’ cautiousness amidst broader economic uncertainty.
Looking ahead, Broadcom’s management anticipates a strong finish to the year, with fourth-quarter revenue projected to reach approximately $14 billion. The company also expects adjusted EBITDA to be around 64% of the projected revenue, indicating continued profitability. The company’s focus on AI and its strategic acquisitions like VMware position it for continued growth and market leadership in the future.
