What happened

After four straight days of steadily rising stock prices, shares of semiconductor manufacturer Broadcom (AVGO 3.84%) reversed course and declined Friday afternoon, falling 5.4% through 1:45 p.m. ET despite "beating earnings" last night.

Heading into its fiscal third quarter of 2023, analysts had forecast Broadcom would earn $10.42 per share on sales of $8.86 billion. Broadcom edged out the sales forecast with revenue of $8.88 billion and beat soundly on earnings, reporting a per-share profit of $10.54.  

So what

So what's not to like about that? Well, let's take a look.

Sales beat forecasts but even so, revenue was up only 5% year over year -- not overly impressive. Earnings beat as well -- at least, pro forma earnings did. But when calculated according to generally accepted accounting principles (GAAP), rather than the non-GAAP pro forma standard, Broadcom actually earned not $10.54 per share, but only...$7.74. Granted, that was still better than last year but only an 8% improvement.  

What really seems to have disappointed investors, though, was Broadcom's guidance for continued weak growth in the quarter to come. Management forecast sales of only about $9.27 billion for its fiscal Q4. Not only is that slightly beneath consensus forecasts for $9.28 billion, it also represents 4% year-over-year growth, so slower growth than seen in Q3.

Now what

You can probably chalk up Broadcom's stock-price decline today to this: weak revenue growth in Q3 and probably weaker growth in Q4. And yet, I think there may be an even broader lesson that investors can draw from Broadcom's results.

What growth management did accomplish in Q3 (and presumably, what growth it expects in Q4), management credited to "demand for next generation networking technologies as hyperscale customers scale out and network their AI clusters within data centers." This is curious, however. Artificial intelligence, after all, is supposed to be the next big thing in tech. But it's producing only 5% revenue growth for Broadcom? And only 4% growth in Q4?

That doesn't sound to me like AI is taking off like wildfire, as we've heard it is. It actually sounds kind of...tepid, at least at Broadcom. The greatest import of Broadcom's results, therefore, may be as a caution to investors not to get too excited about every company that claims to be in the AI business lest that excitement lead to disappointment like today's.