Summary
- Broadcom’s stock dropped 10% following a strong 3Q FY2024 earnings result, driven by disappointing 4Q revenue guidance.
- AI-related revenue showed robust growth, with a 174% YoY increase in 3Q and an optimistic outlook for 4Q and FY2025.
- The company experienced a deceleration in revenue growth to 4% YoY, excluding VMware’s contribution in 3Q, which also results in negative GAAP EPS due to acquisition-related costs.
- The Semiconductor Solutions segment, which represents 55% of revenue, experienced only mid-single-digit growth but indicated a gradual rebound in the coming quarters.
- I maintain a hold rating as the stock is still trading at a premium valuation of 13.5x EV/sales forward.
What Happened in 3Q FY2024
Broadcom’s (NASDAQ:AVGO) stock dropped 10% following its 3Q FY2024 earnings report. Despite strong growth in the Infrastructure Software segment, much of it was driven by VMware, while AVGO’s core software business saw a sharp deceleration, growing only 3.3% compared to 34% YoY in the previous quarter. However, AI-related revenue continued its robust growth, implying at least a 174% YoY increase in 3Q, and the company raised its AI revenue outlook for 4Q. Meanwhile, the Semiconductor Solutions segment, which accounts for 55% of total revenue, posted only mid-single-digit growth.
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