- Revenue forecast beats analyst expectations
- Management revises up full-year AI guidance
Computing and software conglomerate Broadcom (US:AVGO) beat broker expectations in the second quarter as artificial intelligence (AI) investment pushed up revenue from its networking business.
The semiconductor designer makes chips for ethernet switches used in AI data centres. Demand has surged as AI computing companies have ramped up spending. In the three months to May, Broadcom’s underlying revenue rose 12 per cent year on year, driven by a 280 per cent increase in AI revenue. It now makes $3.1bn (£2.4bn) from AI computing, which is around a quarter of the business.
Total reported revenue was up 43 per cent because of the contribution of $2.7bn from software company VMWare, which it acquired in November. Including VMWare, infrastructure software now makes up $5.3bn of revenue, equivalent to 44 per cent.
The rest of the business is made up of wireless chips, which are used in iPhones, and chips for broadband infrastructure. Both saw revenue fall as iPhone sales dropped and telecoms companies continued to be cautious in their investment.
The growth outlook for the underperforming parts of Broadcom is relatively limited compared with the growing AI business. Management has increased its full-year AI revenue forecast from around $10bn to above $11bn. However, Melius Research analyst Ben Reitzes believes this is conservative. “We see this guide as one that leaves a lot of room for upside and it remains the main figure investors care about,” he said.
The $12.5bn revenue for the quarter was 3.6 per cent ahead of the consensus broker forecast compiled by FactSet. Broadcom’s share price rose 13 per cent on the results and is now up 56 per cent for the year. Even with this run-up in the share price, Broadcom is still relatively cheap in the world of AI, trading on a forward price/earnings ratio of 28. However, if it continues to revise up its AI revenue its valuation won't stay there for long.
