Broadcom’s Earnings Spark Mixed Analyst Reactions: AI Strength Counters Disappointing Guidance
Broadcom Inc. (AVGO) recently reported its quarterly financial results, leaving analysts with a mixed bag of opinions. While the company demonstrated continued strength in its artificial intelligence (AI) solutions and VMware business, some analysts found the overall guidance disappointing. Despite this, several analysts maintain their bullish outlook, citing Broadcom’s robust long-term growth potential driven by its AI dominance and other strategic initiatives.
Key Takeaways:
- Strong AI Performance: Broadcom’s AI segment continued to perform exceptionally well, with revenues surging by 350% year-over-year. This growth was fueled by contributions from Google’s TPU and shipments to other major players like ByteDance and Meta.
- VMware Integration Progress: Broadcom’s VMware acquisition continues to integrate seamlessly, with 70% of bookings now driven by subscription-based models. This signals a significant shift towards a recurring revenue model for the company.
- Mixed Guidance: While Broadcom raised its AI revenue outlook to $12 billion for fiscal year 2024, overall revenue guidance was slightly below consensus estimates. This led some analysts to express caution, despite the positive AI performance.
- Long-Term Growth Potential: Numerous analysts remain optimistic about Broadcom’s long-term prospects, citing its robust AI franchise, strong margins, and consistent free-cash-flow generation. They anticipate a continued focus on returning capital to shareholders.
Analyzing the Analyst Reactions:
Bank of America: A "High-Quality AI Franchise" for the Future
Vivek Arya, analyst at Bank of America, reiterated his "Buy" rating with a $215 price target. He highlighted Broadcom’s "high-quality AI franchise" as a key driver of upside growth in fiscal 2025. Arya sees the company as a "top compute pick," noting its solid VMware sales and progress on gross margins. He believes Broadcom’s transformation from a mid-single digit growth company to a mid-teens growth company, powered by its AI and VMware segments, creates a compelling long-term narrative.
KeyBanc: AI and VMware Strength Outshine Other Segment Weakness
John Vinh, analyst at KeyBanc, maintained his "Overweight" rating with a $210 price target. He attributed the strong quarter to the positive performance of its AI and VMware businesses, which helped offset weakness in other segments. Vinh believes Broadcom is well-positioned for "above-industry growth.” He emphasized the company’s successful track record of acquisitions, which creates diversification opportunities and long-term growth stability, especially given the smartphone market saturation at the high-end.
Cantor Fitzgerald: AI Upbeat, Overall Guidance Slightly Disappointing
C.J. Muse, analyst at Cantor Fitzgerald, reiterated his "Overweight" rating with a $200 price target. While he acknowledged Broadcom’s raised AI outlook for fiscal year 2024, he expressed disappointment with the overall revenue guidance. Despite this, Muse remains optimistic about Broadcom’s future, believing that improvement in other business segments will drive further topline growth and margins in the semiconductor business.
Benchmark: Steady Progress, But AI Upside Falls Short of Expectations
Cody Acree, analyst at Benchmark, maintained his "Overweight" rating with a $200 price target. He described the earnings report as solid but lacking the clear upside momentum that many investors were hoping for, especially in the wake of Nvidia’s recent stock price decline. While acknowledging steady progress in the AI business, Acree was more impressed by the company’s VMware performance and the stabilization of non-AI semiconductor revenue. He remains confident in Broadcom’s fundamental strength.
Goldman Sachs: Near-Term Hiccup, But Long-Term Thesis Remains Strong
Toshiya Hari, analyst at Goldman Sachs, reiterated his "Buy" rating and raised his price target from $185 to $190. He believes the company’s current AI Semiconductor performance could be a "near-term hiccup". He remains steadfast in his long-term thesis, focusing on Broadcom’s strong position in high-speed networking, impressive margins, consistent free-cash-flow generation, and commitment to capital return initiatives. Hari anticipates a rebound in AI semiconductor growth coupled with a cyclical recovery in non-AI revenue streams, leading to future beat-and-raise performances.
Broadcom’s Stock Performance:
Broadcom’s shares experienced a 9.4% decline to $138.49 on the day following the earnings report. However, the stock remains up 26% year-to-date in 2024. This decline likely reflects some investor disappointment with the overall guidance, despite the positive AI performance.
Conclusion:
Broadcom’s recent earnings release has sparked mixed reactions from analysts. While its AI business continues to demonstrate remarkable growth, the overall guidance disappointed some. However, many analysts remain optimistic about the company’s long-term prospects, citing its robust AI franchise, strong margins, and strategic initiatives. The coming quarters will provide further clarity on Broadcom’s ability to navigate the evolving landscape of the AI market and capitalize on its expanding opportunities.
