MW Broadcom's stock pops as upbeat earnings outlook soothes AI investors

By Emily Bary and Therese Poletti

It's been a tough stretch for AI stocks, but Broadcom's guidance brings the sort of upside investors want to see

Broadcom Inc.'s latest earning and guidance should be welcome relief on Wall Street, given a tough recent stretch for the artificial-intelligence trade.

The software and semiconductor company, which has ridden the AI wave with its application-specific integrated circuits and more, on Thursday delivered guidance ahead of expectations at a time when investors have gotten more cautious about the AI chip sector. While industry giant Nvidia Corp. $(NVDA)$ delivered better-than-expected results and guidance last week, its stock went on to record its worst post-earnings drop in years, as investors seemed to be looking for more oomph.

But after Broadcom shares $(AVGO)$ lost 6.3% in Thursday's regular session following a lack of meaningful upside from rival Marvell Technology Inc. $(MRVL)$, they jumped about 13% in Thursday's after-hours trading on the company's own upbeat news.

"This was a solid quarter, in our view, and should calm increasing investor fears regarding a potential slowdown in AI spending and the potential growth of AI chip demand," said Edward Jones analyst Logan Purk, in a note to clients late Thursday.

See also: Nvidia's stock selloff deepens after Marvell earnings

Broadcom expects fiscal second-quarter revenue of $14.9 billion, whereas analysts tracked by FactSet were anticipating $14.7 billion.

In the company's call with analysts, Chief Executive Hock Tan said that the demand for its customized chips among hyperscalers was continuing to grow. "Our hyperscale partners continue to invest aggressively in their next-generation frontier models, which do require higher performance," Tan said, adding that Broadcom has a total of three hyperscaler customers. He added it is working with four more hyperscaler companies, but pointed out that these new design wins have a long lead time.

In the latest quarter, Broadcom generated AI revenue of $4.1 billion, up 77% from a year before, and better than its previous guidance of $3.8 billion. The company expects to see $4.4 billion in AI semiconductor revenue in the fiscal second quarter thanks to strong hyperscale demand for the company's products.

Opinion: Broadcom and Marvell are a growing threat to Nvidia as AI-chip needs evolve

When asked by analysts for more details about the potential additional customers, Tan said the other four companies still need to develop software for their XPUs for AI, referring to custom-designed accelerators.

"The four are, I call it partners, who are trying to create the same thing as the first three," Tan said. "And to run their own frontier models, each of it only to train their own frontier models. And as I also said, it doesn't happen overnight. To do the first chip could take, would take, typically a year and a half." Tan said he does not consider them as customers yet, adding that he only considers design-win customers once their design is deployed in volume production. He also said he only wants high-volume customers, dismissing the theoretical production of 5,000 XPUs as "a joke. That's not real production in in our view," Tan said.

"There is no reason why these four guys would not create demand in the range of what we think for the first three guys, probably later," Tan said. "They started later, so they will probably get there later."

Broadcom's overall revenue for the fiscal first quarter came in at $14.9 billion, ahead of the $14.6 billion consensus view. The company did $8.2 billion in semiconductor revenue, up 11% from the prior year, and $6.7 billion in infrastructure software revenue, up 47%. Analysts were looking for $8.1 billion and $6.5 billion, respectively.

The company has been growing its software footprint in recent years, partly through the acquisition of VMware, which closed in November 2023. But Tan also said that the company has put the brakes on any future M&A for the time being.

"No, I'm too busy," Tan said, in response to a question about his thoughts on M&A going forward. "We're too busy doing AI and VMware at this point. We're not thinking of it at this point."

Broadcom generated adjusted earnings per share of $1.60 in its latest quarter, up from $1.10 a year before. Analysts had been expecting $1.51.

Shares of Broadcom have lost about 23% this year through Thursday's close, though they're up 33% on a 12-month basis.

-Emily Bary -Therese Poletti

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March 06, 2025 19:54 ET (00:54 GMT)

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