Chipmaker and infrastructure software provider Broadcom beat Wall Street's targets for its fiscal third quarter but offered an outlook that was only in line with analyst estimates for the current period. AVGO stock slid Friday on the news.
The San Jose, Calif.-based company late Thursday said it earned an adjusted $10.54 a share on sales of $8.88 billion for the quarter ended July 30. Analysts polled by FactSet called for Broadcom earnings of $10.43 a share on sales of $8.85 billion. On a year-over-year basis, Broadcom earnings rose 8% while sales increased 5%.
For the current quarter, Broadcom forecast revenue of $9.27 billion, matching views.
"Broadcom's third-quarter results were driven by demand for next-generation networking technologies as hyperscale customers scale out and network their AI clusters within data centers," Chief Executive Hock Tan said in a news release.
He added, "Our fourth-quarter outlook projects year-over-year growth, reflecting continued leadership in networking for generative AI."
AVGO Stock Sinks After Report
On the stock market today, AVGO stock fell 5.5% to close at 872.52. During the regular session Thursday, AVGO stock rose 3.4% to end at 922.89.
Semiconductor products accounted for 78% of Broadcom's revenue in the third quarter. Meanwhile, infrastructure software contributed 22% of sales. Chip sales rose 5% to $6.94 billion while infrastructure software sales increased 5% to $1.94 billion.
Meanwhile, Broadcom expects its acquisition of VMware to close on Oct. 30. The companies announced the cash-and-stock deal in May 2022.
AVGO stock and VMW stock are on the IBD Tech Leaders list.
AI Chips Are A Growth Engine
Artificial intelligence business will be responsible for all of the growth in Broadcom's chip sales this year, Oppenheimer analyst Rick Schafer said in a note to clients. He estimates that Broadcom will generate $4 billion in AI-related sales, split 75-25 between custom compute chips and connectivity solutions.
Schafer rates AVGO stock as outperform with a price target of 900.
KeyBanc Capital Markets analyst John Vinh kept his overweight rating on AVGO stock and hiked his price target to 1,000 from 940.
Broadcom generated over $1 billion in AI chip sales in its fiscal third quarter. Plus, AI chip sales are seen rising 50% quarter to quarter in the current period, he said.
AI likely will represent 15% of Broadcom's semiconductor sales this year and over 25% next year, Vinh said.
At least nine Wall Street firms raised their price targets on AVGO stock after Broadcom's earnings report.
On Thursday, AVGO stock touched a buy point of 923.18 in a flat base, according to IBD MarketSmith charts. In intraday trading, AVGO stock notched an all-time high of 923.67.
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