Broadcom’s revenue in the fiscal 2024 second quarter increased by 43% year over year to $12.5 billion, surpassing analysts’ estimates. Adjusted earnings per share grew by 6%, exceeding expectations, and adjusted EBITDA also beat Wall Street predictions. Broadcom is viewed as a high-quality semiconductor and software company due to its strong AI-related business, run by CEO Hock Tan, known for his value-creating M&A strategy. The company’s stock trades at a more reasonable price-to-earnings ratio compared to other chip stocks, and it has a shareholder-friendly capital allocation strategy with dividends and buybacks. Competitors include Marvell Technology, Advanced Micro Devices, and Nvidia. The stock has gained roughly 34% year-to-date, closing at a record high just under $1,500 per share.
In the quarterly commentary, Broadcom reported growth in semiconductor solutions revenue, driven by AI-related sales which offset cyclical weaknesses in enterprise and telecommunications sectors. Networking revenue increased by 44% year over year, with AI being the dominant theme, and custom accelerator revenue up significantly. The legacy semiconductor businesses, including wireless, server and storage connectivity, broadband, and industrial sectors, experienced mixed results, with some weaknesses expected to recover in the second half of the year. Infrastructure Software revenue also beat expectations, with VMware showing promising growth as the integration progresses.
Broadcom’s strong cash generation allowed for significant capital allocation activities in the fiscal 2024 second quarter, including share repurchases, dividend payments, and debt retirements. The company generated approximately $4.5 billion in free cash flow, which increased to $5.3 billion when excluding certain expenses. Broadcom increased its full-year revenue and adjusted EBITDA outlook, citing a stronger AI revenue forecast. The company now expects revenue to reach $51 billion, with adjusted EBITDA of approximately 61% of projected revenue. This raised guidance aligns with the company’s positive outlook for AI-related business growth.
The market responded positively to Broadcom’s quarterly results and outlook, with shares surging more than 14% in extended trading. The company’s AI-related business saw continued growth, prompting management to raise the full-year outlook. The company’s strong margin performance, commitment to returning cash to shareholders, and progress in integrating VMware contributed to the positive reception from investors. Broadcom’s announcement of a 10-for-1 stock split further boosted investor sentiment, reflecting the company’s strategy to make its stock more accessible and appealing. As a subscriber to the CNBC Investing Club, one can receive trade alerts before trades are made by Jim Cramer, who is long on AVGO, NVDA, GOOGL, and META. The investing club information is subject to terms and conditions, privacy policy, and disclaimer, and no specific outcome or profit is guaranteed.
