Shares of the semiconductor and networking specialist are about to get much cheaper.Advances in artificial intelligence (AI) have captured the spotlight since early last year, and many businesses have pivoted to capture this burgeoning market. As a result, companies positioned to profit from this technology have experienced a run-up in their stock prices commensurate with this vast opportunity. One company poised for this paradigm shift is Broadcom (AVGO 2.36%), which provides many of the semiconductors and ...

Sundry Photography Prelude I initiated coverage of Broadcom Inc (NASDAQ:AVGO)(NEOE:AVGO:CA) following the Q1 earnings report with a Buy rating. The stock has performed well since that article, and I reiterate my Buy rating following the Q2 report. Let's dive into the Q2 report and discuss why it strengthened my conviction in Broadcom. Q2 2024 Earnings Broadcom is a semiconductor and software company with a broad range of offerings. The company posted a double beat and raise with Non-GAAP EPS of $10.96 b ...

Summary of Broadcom Inc. Second Quarter Fiscal Year 2024 Financial Results Conference Call Company Overview - The conference call is regarding Broadcom Inc. and its financial results for the second quarter of fiscal year 2024 [1] Key Points and Arguments - The call features opening remarks from Jiyu, Head of Investor Relations, and includes participation from key executives such as Hawk Tan (President and CEO) and Kirsten Spears (Chief Financial Officer) [1] Additional Important Content - No specific financial data, industry insights, or detailed discussions were provided in the excerpt [1]

DNY59 Introduction Given its positioning as a major infrastructure player in the golden era of AI, Broadcom Inc. (NASDAQ:AVGO)(NEOE:AVGO:CA) has enjoyed a monstrous stock price rally in recent months. And, in light of reporting a top and bottom line beat for Q2 FY2024, Broadcom stock has popped up by another ~13.5% in the after-hours session: GoogleFinance In this note, we shall examine Broadcom's latest quarterly report and re-run the stock through our valuation model to determine AVGO's long-term ri ...

Key TakeawaysBroadcom shares jumped in extended trading Wednesday after the chipmaker reported better-than-expected fiscal second-quarter revenue fueled by AI product sales and announced a 10-for-1 stock split.Broadcom shares have formed an ascending triangle that suggests a continuation of the current longer-term uptrend.Leading into the chipmaker’s quarterly results, the stock broke out above an ascending triangle on increasing volume, indicating bullish expectations by market participants.The measuring p ...

Revenue and Growth - The company generated $12,487 million in total net revenue for the fiscal quarter ended May 5, 2024, compared to $8,733 million for the same period in the previous year, representing a growth of 43%[102] - The semiconductor solutions segment accounted for $7,192 million in revenue, while subscriptions and services contributed $5,295 million, indicating a significant increase in service revenue from $1,992 million in the prior year[102] - Total net revenue reached $12,487 million, reflecting a 43% increase compared to $8,733 million in the prior year[108] - Semiconductor solutions segment net revenue increased to $7,202 million, a 6% increase from $6,808 million in the prior year[108] - Infrastructure software segment net revenue surged to $5,285 million, a 175% increase from $1,925 million in the prior year[108] Expenses and Margins - The gross margin for the fiscal quarter was 62%, down from 70% in the previous year, with total operating expenses rising to $4,811 million from $2,107 million[102] - Research and development expenses increased to $2,415 million, representing 19% of total revenue, compared to 15% in the previous year[102] - Selling, general and administrative expenses increased by $839 million, or 192%, totaling $2,063 million for the two fiscal quarters[111] - Amortization of acquisition-related intangible assets increased by $479 million, or 138%, for the fiscal quarter[112] - Restructuring and other charges amounted to $292 million for the fiscal quarter, primarily due to employee termination costs from the VMware Merger[113] - Interest expense for the fiscal quarter was $1,047 million, up from $405 million in the prior year[117] Cash Flow and Dividends - Cash generated from operations for the fiscal quarter was $4,580 million, demonstrating strong operational cash flow[97] - The company paid $2,443 million in cash dividends during the fiscal quarter[97] - Cash dividends declared and paid increased to $4,878 million for the two fiscal quarters ended May 5, 2024, compared to $3,840 million for the same period in the prior year, with dividends per share rising from $9.20 to $10.50[122] - Net cash provided by operating activities was $9,395 million for the two fiscal quarters ended May 5, 2024, an increase from $8,538 million in the prior year, primarily due to contributions from VMware[124] Acquisitions - The acquisition of VMware was completed on November 22, 2023, with a total consideration of approximately $84,186 million, including $30,788 million in cash and $53,398 million in stock[98] - The acquisition of Seagate's SoC operations was finalized on April 23, 2024, for $600 million, aimed at enhancing the company's SoC product portfolio[99] - Cash used in investing activities surged to $26,183 million, largely due to $25,976 million paid for the VMware Merger and the acquisition of Seagate's SoC operations[126] Customer Concentration - Direct sales to a single distributor customer accounted for 29% of net revenue for the fiscal quarter, highlighting significant customer concentration risks[105] - The company expects continued significant customer concentration, with the top five customers accounting for approximately 40% of net revenue for the fiscal quarter[105] Financial Position - Cash and cash equivalents stood at $9,809 million as of May 5, 2024, with additional liquidity from a $7.5 billion revolving credit facility[118] - The VMware Merger was completed on November 22, 2023, resulting in significant changes to the balance sheet, including cash and cash equivalents decreasing to $9,809 million from $14,189 million[120] - The current portion of long-term debt decreased to $2,426 million, reflecting $934 million in repayments[121] - Trade accounts receivable increased to $5,500 million, attributed to strong collections[121] - The company had $48.1 billion in principal amount of fixed-rate senior notes outstanding as of May 5, 2024, with an estimated fair value of $42.4 billion[129] - A hypothetical 1% change in interest rates would affect the interest expense on the $28.4 billion of outstanding 2023 Term Loans by approximately $287 million over the next 12 months[129] Integration and Controls - The company is in the process of integrating VMware operations into its systems and control environment, maintaining appropriate internal controls over financial reporting during this transition[131]

Financial Data and Key Metrics - Consolidated net revenue for Q2 2024 was $12.5 billion, up 43% YoY, driven by a full quarter contribution from VMware Excluding VMware, revenue grew 12% YoY, with AI revenue surging 280% YoY to $3.1 billion [6] - Gross margins were 76.2% of revenue, with operating income at $7.1 billion, up 32% YoY, and operating margin at 57% of revenue Adjusted EBITDA was $7.4 billion, or 60% of revenue [16][17] - Free cash flow was $4.4 billion, representing 36% of revenue Excluding restructuring and integration costs, free cash flow was $5.3 billion, up 18% YoY [18] - The company raised its fiscal 2024 revenue guidance to $51 billion, with adjusted EBITDA expected at 61% [21] Business Segment Performance Infrastructure Software - Revenue for the infrastructure software segment was $5.3 billion, up 175% YoY, primarily due to VMware's contribution VMware revenue grew from $2.1 billion in Q1 to $2.7 billion in Q2, with a target of $4 billion per quarter run rate [7][8] - Annualized Booking Value (ABV) for VMware accelerated from $1.2 billion in Q1 to $1.9 billion in Q2, with the broader software portfolio ABV growing from $1.9 billion to $2.8 billion [8] - Operating margin for infrastructure software was 60%, excluding transition costs, and is expected to converge towards classic Broadcom software levels by fiscal 2025 [8][15] Semiconductor Solutions - Semiconductor revenue was $7.2 billion, up 6% YoY, representing 58% of total revenue Networking revenue grew 44% YoY to $3.8 billion, driven by strong demand from hyperscalers for AI networking and custom accelerators [9][17] - Wireless revenue grew 2% YoY to $1.6 billion, while server storage connectivity revenue declined 27% YoY to $824 million Broadband revenue declined 39% YoY to $730 million, and industrial resale revenue declined 10% YoY to $234 million [12][13][14] - Gross margins for semiconductors were 67%, down 370 basis points YoY, due to a higher mix of custom AI accelerators [17] Market Performance and Trends - AI revenue is expected to exceed $11 billion in fiscal 2024, with networking revenue growth revised to 40% YoY, up from prior guidance of over 35% [14][15] - The company is leading the transition to 800 gigabit bandwidth in AI data centers and developing next-generation switches, DSPs, and optics for 1.6 terabit connectivity [10] - Non-AI semiconductor revenue is expected to recover modestly in the second half of fiscal 2024, with server storage and broadband revenue bottoming in Q2 [14][15] Strategic Direction and Industry Competition - The integration of VMware is progressing well, with the company modernizing product SKUs and transitioning to a subscription licensing model VMware's spending run rate is expected to decline to $1.3 billion by Q4 2024 [7][8] - Broadcom is not competing directly with NVIDIA in the GPU market but focuses on custom AI accelerators for hyperscalers The company is leveraging its deep expertise in Ethernet networking to support AI clusters [24][25] - The company is developing next-generation networking products, including Tomahawk 6, expected in late 2025, to support larger AI clusters [39][41] Management Commentary on Business Environment and Outlook - Management highlighted strong demand for AI-related products, with AI revenue expected to grow significantly in fiscal 2024 The company is optimistic about the recovery of non-AI semiconductor revenue in the second half of the year [14][15] - The integration of VMware is on track, with significant progress in reducing costs and improving operational efficiency The company expects VMware's operating margins to converge with Broadcom's classic software margins by fiscal 2025 [8][15] Other Important Information - Broadcom announced a 10-for-1 forward stock split, with trading on a split-adjusted basis expected to commence on July 15, 2024 [20] - The company repaid $2 billion of floating-rate debt in Q2 and plans to continue quarterly debt repayments throughout fiscal 2024 [19] Q&A Session Summary Question: Competition with NVIDIA in AI accelerators and Ethernet switching [23] - Broadcom does not compete with NVIDIA in GPUs but focuses on custom AI accelerators for hyperscalers The company leverages its expertise in Ethernet networking to complement GPU clusters [24][25][26] Question: AI revenue growth and mix between compute and connectivity [28] - AI revenue mix is shifting from 80% accelerators and 20% networking to closer to 60% accelerators and 40% networking by year-end [29] Question: AI revenue guidance and growth trajectory [31] - The $11 billion AI revenue guidance is conservative, with potential for higher growth as deployment rates improve [32][33] Question: Networking product cadence and adoption [37] - Broadcom maintains a two-year cadence for new networking products, with Tomahawk 6 expected in late 2025 to support larger AI clusters [39][41] Question: VMware integration and subscription model adoption [43] - VMware's transition to a subscription model is progressing well, with strong customer interest in Cloud Foundation offerings [44][45] Question: Growth strategy beyond VMware [48] - Broadcom is focused on organic growth and improving acquired assets, but M&A remains an option to drive shareholder value [50] Question: Networking business ex-AI and inventory correction [52] - Non-AI networking revenue is expected to recover modestly in the second half of fiscal 2024, following a bottom in Q2 [53] Question: GPU demand and AI networking opportunity [55] - Approximately 25-30% of GPU infrastructure spending is allocated to networking, with Broadcom benefiting from its components and switching solutions [56][57] Question: Custom AI accelerator profitability and competition [59] - Broadcom's custom AI accelerator business is highly profitable, with strong margins driven by scale and integration with high-bandwidth memory [60][61] Question: Networking switch portfolio and white-box deployments [65] - Broadcom's networking portfolio offers flexibility for hyperscalers, with a strong focus on open network operating systems and end-to-end solutions [66][67] Question: Software business ex-VMware and Cloud Foundation adoption [69] - Brocade's strong performance is cyclical, while VMware Cloud Foundation adoption is driven by enterprise demand for integrated data center solutions [70][71][72] Question: VMware channel conflict resolution [75] - Broadcom has streamlined VMware's channel strategy, investing in a network of distributors and value-added resellers to improve sales velocity [76][77][78]

Broadcom Inc. (AVGO) came out with quarterly earnings of $10.96 per share, beating the Zacks Consensus Estimate of $10.79 per share. This compares to earnings of $10.32 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 1.58%. A quarter ago, it was expected that this chipmaker would post earnings of $10.25 per share when it actually produced earnings of $10.99, delivering a surprise of 7.22%.Over the last four quarters, the compa ...

Key TakeawaysBroadcom reported second-quarter revenue beating analysts' estimates, while earnings fell short of projections.The company said that AI product revenue reached a record high.Broadcom also announced a 10-for-1 forward stock split, with the first day of split-adjusted trading set for July 15.Shares of Broadcom surged in extended trading Wednesday following the release. Broadcom (AVGO) reported second-quarter revenue beating analyst estimates, while earnings fell short of projections. The company ...

About this content About Angela Harmantas Angela Harmantas is an Editor at Proactive. She has over 15 years of experience covering the equity markets in North America, with a particular focus on junior resource stocks. Angela has reported from numerous countries around the world, including Canada, the US, Australia, Brazil, Ghana, and South Africa for leading trade publications. Previously, she worked in investor relations and led the foreign direct investment program in Canada for the Swedish government ...