Broadcom shares fall despite strong earnings and revenue growth

Broadcom, Inc. (AVGO) reported strong financial results for the first quarter of fiscal year 2024, ending February 4, 2024, driven by two key factors: the acquisition of VMware and strong demand for its networking products in AI data centers. Broadcom also announced a quarterly dividend and reported significant growth in revenue, adjusted EBITDA , and free cash flow. The company reaffirmed its guidance for fiscal year 2024 which may disappoint given the high expectations. 

Shares of AVGO fell approximately 10% in initial reaction but have stabilized to close the gap from its closing price. The stock is hovering around the $1350 level as investors await comments from management on the conference call. The selling pressure has more to do with the 26% rally YTD than the actual results. 

The company reported strong financial performance, surpassing both earnings and revenue expectations. In terms of earnings per share (EPS), Broadcom reported an adjusted EPS of $10.99 for the first quarter, beating the consensus estimate of $10.37 by $0.62

Revenue for the first quarter showed robust growth, rising by 34.2% compared to the prior year period. Broadcom generated $11.96 billion in revenue, exceeding the FactSet Consensus estimate of $11.79 billion.

The company also announced a quarterly common stock dividend of $5.25 per share, reinforcing its dedication to rewarding shareholders.

Broadcom's strong financial performance can be attributed to the acquisition of VMware, which has accelerated revenue growth in the infrastructure software segment. Additionally, the company has experienced significant demand for its networking products in AI data centers and custom AI accelerators from hyperscalers. 

Broadcom's CEO, Hock Tan, expressed optimism about the company's growth prospects, stating that they are pleased to have two strong drivers of revenue growth. The acquisition of VMware is accelerating revenue growth in the infrastructure software segment, as customers deploy VMware Cloud Foundation. Furthermore, strong demand for the company's networking products in AI data centers and custom AI accelerators from hyperscalers is driving growth in the semiconductor segment. 

Kirsten Spears, CFO of Broadcom, emphasized the company's strong free cash flow, which excluding restructuring in the quarter, reached $5.4 billion. Broadcom has also started to pay down debt, with $3 billion paid to date in 2024, and expects to continue to pay down debt in fiscal year 2024. 

Based on current business trends and conditions, the outlook for continuing operations for fiscal year 2024, including the contribution from VMware, is expected to be as follows: revenue guidance of approximately $50.0 billion and Adjusted EBITDA guidance of approximately 60 percent of projected revenue. 

In conclusion, Broadcom's strong earnings and revenue growth are a testament to the company's resilience and growth prospects. The acquisition of VMware and the increasing demand for its networking products in AI data centers and custom AI accelerators from hyperscalers are key drivers of the company's success. With a focus on free cash flow and debt reduction, Broadcom is well-positioned for continued growth in the years ahead .Shares of the semiconductor giant slipped in extended action on the report, despite the better-than-expected results, on a mixed tape for the sector.