Shares of Broadcom (AVGO +0.39%) gained 14.1% in Thursday's after-hours trading, following the semiconductor and infrastructure software maker's release of its report for the fourth quarter of fiscal 2024 (ended Nov. 3).
The stock's big rise is largely attributable to very bullish comments that CEO Hock Tan made on the earnings call about the company's artificial intelligence (AI) revenue growth opportunity over the next three years. Indeed, before the call started at 5 p.m. ET, shares had only been up a modest 2.2% in after-hours trading following the earnings release, but rocketed during Tan's opening remarks.
More minor contributors to the stock's increase were fiscal Q4 2024 earnings beating Wall Street's expectation and fiscal Q1 2025 revenue guidance slightly surpassing the analyst consensus estimate. As for fiscal Q4 revenue, it was in line with the Street's expectation.
Broadcom's key quarterly numbers
| Metric | Fiscal Q4 2023 | Fiscal Q4 2024 | Change YOY* |
|---|---|---|---|
| Revenue | $9.30 billion | $14.05 billion | 51% |
| GAAP operating income | $4.24 billion | $4.63 billion | 9% |
| Adjusted operating income | $5.75 billion | $8.81 billion | 53% |
| GAAP net income | $3.52 billion | $4.32 billion | 23% |
| Adjusted net income | $4.81 billion | $6.97 billion | 45% |
| GAAP earnings per share (EPS) | $0.83 | $0.90 | 8% |
| Adjusted EPS | $1.11 | $1.42 | 28% |
Data source: Broadcom. *Calculations by author, except for revenue growth, which the company provided in the earnings release. YOY = year over year. GAAP = generally accepted accounting principles. Fiscal Q4 2024 ended Nov. 3.
Broadcom's organic growth in the quarter was 11% year over year, Tan said on the earnings call. Organic revenue excluded the contribution from VMware, the large software maker the company acquired in November 2024.
Investors should focus mainly on the adjusted numbers for operating and net income, which exclude one-time items.
Wall Street was looking for adjusted EPS of $1.39 on revenue of $14.06 billion, so Broadcom exceeded the profit expectation and essentially met the top-line one. It surpassed its own revenue guidance, which was $14 billion. It also topped its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) outlook of 64% of revenue, as this profitability metric landed at 65%. The company does not provide earnings guidance.
In the quarter, Broadcom generated cash of $5.6 billion running its operations, up 16% from the year-ago period. It generated free cash flow (FCF) of $5.48 billion, or 39% of revenue, up 16% year over year.
The company ended the quarter with cash and cash equivalents of $9.35 billion, down 6% from the prior quarter, and long-term debt of $66.3 billion.
NASDAQ: AVGO
Key Data Points
Segment performance
| Segment | Fiscal Q4 2024 Revenue | Change YOY |
|---|---|---|
| Semiconductor solutions | $8.23 billion | 12% |
| Infrastructure software | $5.82 billion | 196% |
| Total | $14.05 billion | 51% |
Data source: Broadcom. Calculations by author. YOY = year over year.
The infrastructure software segment's revenue growth was driven by the VMware acquisition.
The semiconductor segment's revenue growth was driven by strong AI product growth notably offset by continued weakness in non-AI products.
On the earnings call, Tan said the semiconductor segment's AI revenue grew 150% year over year to $3.7 billion, while non-AI revenue declined 23% year over year to $4.5 billion. AI products include custom AI chips -- which are application-specific integrated circuits (ASICs) -- for hyperscalers (large tech companies that operate huge cloud data centers) and Ethernet networking products for AI data centers. The good news on the non-AI side is that this revenue has recovered 10% from the bottom six months ago.
Dividend increased by 11%
Broadcom announced that it's increasing its quarterly stock dividend by 11% to $0.59 per share for fiscal year 2025. This is the "fourteenth consecutive increase in annual dividends since we initiated dividends in fiscal 2011," CFO Kirsten Spears said in the earnings release.
Broadcom's dividend was yielding 1.18% at the stock's price at the close of Thursday's regular trading session.
Fiscal Q1 guidance
For the fiscal first quarter of 2025 (which ends Feb. 2), management expects:
- Revenue of $14.6 billion, which equates to growth of 22% year over year.
- Adjusted EBITDA of 66% of projected revenue. For context, in the just-reported Q4, this profitability metric was 65%.
Going into the report, Wall Street had been modeling for Q1 revenue of $14.55 billion, so the company's revenue outlook was slightly higher than this expectation.
CEO projects explosive three-year AI revenue growth
On the earnings call, Tan projected that in fiscal 2027, the company's total AI revenue will be at least $60 billion to $90 billion. This is a conservative estimate as it only includes revenue the company foresees from its existing three big hyperscaler customers. In fiscal 2024, Broadcom's AI revenue was $12.2 billion. So, the CEO's projection equates to an AI product revenue compound annual growth rate (CAGR) of at least 70% to 95%.
One big reason Broadcom's fiscal 2027 AI revenue has a good chance of exceeding the $60 billion to $90 billion projection is that the company just added two additional hyperscaler customers. Thus, it will likely generate some AI revenue from these new customers by fiscal 2027.
