Semiconductor company Broadcom (NASDAQ:AVGO) delivered better-than-expected Q1 financials, driven by significant tailwinds from artificial intelligence (AI)-led demand. The company’s decision not to raise its full-year revenue outlook, despite robust first-quarter sales, irked investors. As a result, the stock dropped over 3% in Thursday’s after-hours trading.
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AVGO Exceeds Street’s Q1 Forecast
AVGO delivered consolidated revenue of $11.96 billion in Q4, up 34% year-over-year. This included the contribution from VMware. The company’s top line exceeded Street’s forecast of $11.79 billion. The company’s top line benefitted from several factors, including the positive impacts of the VMware acquisition, robust demand for its networking products within AI data centers, and the adoption of its custom AI chips by hyperscalers. However, weakness in broadband and server storage revenue remained a drag.
Meanwhile, Broadcom delivered adjusted EPS of $10.99, up 6% year-over-year. Further, its earnings surpassed analysts’ estimate of $10.40.
Outlook
The company reaffirmed its guidance for Semiconductor Solutions revenue, expecting a mid-to-high single-digit year-on-year increase for Fiscal 2024. Notably, it now foresees a much stronger contribution from AI, with AI-related revenue expected to represent 35% of Semiconductor Solution revenue, up from the previous forecast of 25%. Additionally, the company projects AI-driven revenue to exceed $10 billion.
Despite significant tailwinds from AI, Broadcom maintained its projection for consolidated revenue of $50 billion in FY24, indicating 40% year-over-year growth.
Is Broadcom a Buy, Sell, or Hold?
Broadcom is likely to benefit from solid AI-driven demand and the VMware acquisition. Further, the company is deleveraging its balance sheet and paying down debt. These positives are reflected in analysts’ bullish outlook on AVGO stock.
It has 15 Buy and two Hold recommendations for a Strong Buy consensus rating. However, AVGO stock has gained 127.6% in one year. Thus, analysts’ average price target of $1,368.44 implies 2.74% downside potential from current levels.
