Broadcom slides 3% as guidance disappoints

Broadcom (AVGO) reported strong fiscal Q3 results, with adjusted EPS of $1.24, surpassing analyst estimates of $1.22, and revenue of $13.07 billion, slightly ahead of the $13.03 billion consensus. This marked a 47% year-over-year increase, driven by the inclusion of VMware’s revenue. However, shares fell 5.2% in after-hours trading, potentially due to slightly lower-than-expected guidance for Q4, with the company forecasting revenue of $14 billion, below the consensus estimate of $14.13 billion.

The company reported adjusted EBITDA of $8.22 billion, above expectations of $7.95 billion, and adjusted operating income of $7.95 billion, which also exceeded estimates. However, Broadcom posted a GAAP net loss of $1.9 billion, largely due to a $4.5 billion non-cash provision related to the transfer of intellectual property rights. Despite this, non-GAAP net income came in at $6.12 billion, reflecting the company’s strong underlying performance.

Broadcom’s AI business continues to be a key driver, with the company forecasting AI-related revenue of $12 billion for FY2024. This revenue is primarily driven by its Ethernet networking and custom accelerator products, which have seen increasing demand due to the rapid expansion of AI and data center infrastructure. AI now represents a significant portion of Broadcom's semiconductor segment, reinforcing the company’s strategic position in the AI market.

The semiconductor solutions segment generated $7.27 billion in revenue, slightly below estimates of $7.41 billion, while the infrastructure software segment performed better than expected, contributing $5.8 billion, surpassing estimates of $5.5 billion. This strong software performance, fueled by VMware, helped offset some of the softness in the semiconductor segment.

Looking ahead, Broadcom provided Q4 guidance of approximately $14 billion in revenue and adjusted EBITDA of around 64% of revenue. This suggests a continuation of strong profitability, though the slightly lower revenue forecast may have contributed to the stock’s after-hours decline. Additionally, the company announced a quarterly dividend of $0.53 per share, reflecting its ongoing commitment to returning value to shareholders.

Overall, Broadcom’s Q3 results demonstrated solid growth, driven by its AI and software businesses, despite the GAAP loss from non-cash provisions. The company's future outlook remains positive, especially as demand for its AI-related products continues to rise, though investors will be closely watching how the company navigates potential challenges in its semiconductor division.