Broadcom's AI chip revenue jumps 221%, and the stock barely blinks
When a company triples its profit and the stock goes nowhere, it means Wall Street already ate the good news before it was served.
Three key facts
$16.7 billion of AI revenue in one quarter, up 221%. On September 2, Broadcom reported fiscal third-quarter results for the period ended August 2: revenue of $29.6 billion, up 86% year over year; adjusted EPS of $3.32, up 96%; and GAAP EPS of $2.68, up 215%. Both the top and bottom line beat consensus, marking the 14th straight quarter of AI-driven growth.
Q4 AI guidance of $21.7 billion, up 236%. CEO Hock Tan said demand for custom AI accelerators and networking remains very strong, and projected AI semiconductor revenue will accelerate to $21.7 billion next quarter. That would make AI more than 60% of Broadcom's total revenue.
Total revenue guidance of $34.8 billion, $200 million shy of consensus. Analysts wanted $35 billion. A miss of under 0.6% was enough to trigger profit-taking, and shares ended roughly flat after the report, with the stock already trading around 60 times earnings.
WangDou's Take
Two hundred million dollars is the gap between Broadcom's guidance and the Street's number. It is also roughly what Broadcom's AI business now brings in on a single day. That rounding error was enough to stall the stock. Nothing is wrong with Broadcom. The valuation has simply pre-spent the next two good years, so anything short of an absurd beat reads as bad news.
The more interesting story is inside that $16.7 billion. Most of it is custom ASICs built for AI labs and cloud giants. Nvidia sells off-the-rack GPUs that anyone can buy; Broadcom is a bespoke tailor, one design per major client. As labs start counting every cent of inference cost, the tailor gets busier. But the tailor's risk is obvious too: there are only a handful of clients, and the day one of them learns to sew, that order vanishes.
A year ago Broadcom's AI business did a little over $5 billion a quarter. It has more than tripled. The growth is real. The price just assumes it never slows down.
Source: CNBC · The Motley Fool · 24/7 Wall St.