<\/p>\n
Broadcom (AVGO) shares fell 12.6% on June 4 after the chipmaker delivered quarterly results that largely matched Wall Street expectations but failed to provide the AI revenue boost some investors were hoping for.<\/p>\n
The company reported fiscal second-quarter adjusted earnings of $2.44 a share on revenue of $22.19 billion. Analysts had expected earnings of $2.40 a share and revenue of $22.27 billion, CNBC reported.<\/p>\n
Revenue increased 48% from $15 billion a year earlier, while net income jumped 88% to $9.31 billion, or $1.91 a share, from $4.97 billion, or $1.03 a share, in the same quarter last year.<\/p>\n
For the current quarter, Broadcom forecast revenue of about $29.4 billion, ahead of Wall Street estimates of $28.53 billion.<\/p>\n
Despite the strong growth, investors appeared disappointed that Broadcom did not raise its forecast for more than $100 billion in AI semiconductor revenue by fiscal 2027, Investopedia noted.<\/p>\n
The stock remains up about 21% this year, outperforming the Nasdaq Composite’s 15.4% gain. Shares have surged roughly sevenfold since the end of 2022 as demand for artificial intelligence infrastructure accelerated following the launch of ChatGPT.<\/p>\n
Custom AI chips are becoming a bigger business for Broadcom<\/p>\n
Broadcom is one of the biggest beneficiaries of the AI boom, though its business differs from rivals such as Nvidia (NVDA) and Advanced Micro Devices (AMD). <\/p>\n
While Nvidia primarily sells graphics processing units, or GPUs, that power AI training and inference, Broadcom helps customers design custom AI accelerators tailored to their specific workloads.\u00a0<\/p>\n
Chief Executive Hock Tan said in the earnings call that AI revenue more than doubled from a year ago to $10.8 billion during the quarter. The company expects AI revenue to reach $16 billion in the current quarter.<\/p>\n
Tan said Broadcom’s six major AI customers include Anthropic, Alphabet (GOOGL), Meta Platforms (META), and OpenAI. Last year, Tan disclosed that Anthropic had placed an order worth roughly $10 billion for AI chips, CNBC reported.<\/p>\n
Related: Morgan Stanley makes bold new call on Micron stock<\/p>\n
The company continues to see what Tan described as “insatiable” demand for AI infrastructure. Bookings exceeded $30 billion during the quarter, compared with roughly $11 billion of AI products shipped.<\/p>\n
Still, Broadcom reiterated rather than raised its AI forecast.<\/p>\n
“We expect this momentum to continue into fiscal year 2027 and reiterate our AI semiconductor revenue guidance to be in excess of $100 billion,” Tan said during the earnings call.<\/p>\n
Tan also revealed that Broadcom plans to focus on supplying \u201conly chips,\u201d rather than complete AI systems, as Broadcom had previously said it would be providing to its customers.<\/p>\n
Broadcom stock closed at $418.91 a share on June 4.<\/p>\n
Getty Images<\/p>\n
Citi sees selloff as a buying opportunity<\/p>\n
Analysts at Citi said the earnings report was largely in line with expectations, though AI revenue guidance for the July quarter came in slightly below Wall Street forecasts.<\/p>\n
Citi maintained its buy rating and $500 price target on the stock. “We view the share price pullback as an enhanced buying opportunity,” the analysts wrote in a research note shared with TheStreet.<\/p>\n
Related: 5-star analyst revamps Broadcom stock price target after earnings<\/p>\n
Broadcom expects gross margin to decline to about 74% in the current quarter from roughly 77% previously as AI chips account for a larger share of sales. AI revenue is expected to increase from about 30% of total revenue in the April quarter to roughly 38% in the July quarter.<\/p>\n
Citi said the lower margin outlook reflects a growing mix of custom AI chips, which typically carry lower gross margins than Broadcom’s networking products and software businesses.<\/p>\n
“Lower gross margins due to higher AI sales mix are offset by stable operating margins,” the analysts said.<\/p>\n
While Citi remains bullish on Broadcom, the firm noted that investors should keep an eye on one key customer.<\/p>\n
“We estimate it derives ~35-40% of sales from its largest customer, Google. Therefore, any major uptick\/downtick in demand for Google’s products could result in upside\/downside to our estimates and rating for Broadcom,” the analysts wrote.<\/p>\n
Related: Cathie Wood buys $67 million of surging semiconductor stock<\/p>\n
#Citi #revisits #Broadcom #stock #price #target #postearnings #selloff<\/p>\n","protected":false},"excerpt":{"rendered":"
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