Broadcom’s first-quarter results, which exceeded analyst expectations on Thursday due to strong AI revenue growth, exceeded the analysts’ estimates.
Stocks of the semiconductor giant rose over 10% in late trading after it also announced a positive revenue outlook for the quarter.
Broadcom Q1 Earnings
The adjusted profit per share was $1.60, exceeding the consensus estimate by $1.49.
The revenue came in at $14.92 billion, which was higher than the $14.61 billion expected.
Broadcom also beat Wall Street’s expectations of $14.76 Billion for the second quarter.
The revenue for the last quarter increased by 25% from the $11,96 billion recorded in the same time period of the previous year.
The net income increased to $5.5 billion or $1.14 a share. This is a significant increase from the $1.33billion or 28c per share in the previous period.
Investors’ concerns about President Donald Trump’s tariff policy led to a 23% decline in Broadcom’s shares before its earnings report.
Broadcom reported $4.1 billion of AI revenue during the first quarter. This represents a 77% increase year-over-year.
AI sales is included in the semiconductor solutions segment of the company, which has reported an annual growth of 11% to $8.21 Billion.
Broadcom’s CEO Hock Tan said that the company expects to “continue a strong growth in AI semiconductor revenues.”
According to the company, AI revenues will reach $4.4 billion by the end of second quarter. This represents a growth rate of 44% over last year.
Broadcom, in December 2016, announced that it would be developing customized AI chips for three major cloud clients.
Tan said on Thursday the company is “deeply involved” with another two hyperscalers, and working with four potential customers to develop custom AI chips.
Wall Street analysts discuss Broadcom
KeyBanc Capital Markets increased its Broadcom price target to $275, from $260. They maintained an Overweight rating. KeyBanc Capital Markets raised its price target on Broadcom to $275 from $260, maintaining an Overweight rating.
Broadcom AI revenues exceeded analysts’ expectations by $300 Million, thanks to robust network demand.
Bernstein reiterated its rating of Outperform with a $250 price target, citing Broadcom’s strong gross margins at 79.1% as well as lower than expected operating expenses.
AI Semiconductor sales have offset the weakness in core network and storage business.
Srini Pajiri, an analyst at Raymond James, maintained the Market Perform rating despite Broadcom’s excellent execution and high customer engagement.
Pajjuri warned that Nvidia could be a competitor in the market for custom ASICs, and warn customers not to proceed with large-scale implementations.
Broadcom’s positive AI outlook and earnings report indicate a strong demand for semiconductor solutions. However, the ongoing market competition and conditions are still factors that need to be monitored.
CFRA maintained a buy rating for Broadcom Limited citing that AI semiconductor revenues could enhance Broadcom’s business model in the coming three years.
CFRA expects a continued high performance from the software sector, especially after the anniversary of VMware’s acquisition.
The post Broadcom stocks surge 10% following Q1-print: Buy, Sell or Hold? This post may change as new information unfolds.
