Source: Wall Street News Author: Zhao Yuhe

$Broadcom (AVGO.US)$US stocks released their second-fiscal quarter results after the market on Wednesday, showing that thanks to strong demand for AI products, the company's quarterly results exceeded analysts' expectations and raised full-year performance guidelines, while announcing a 10-1 stock split plan. In early trading of US stocks today, Broadcom's stock price surged by more than 13%.

According to financial reports, Broadcom's adjusted net revenue for the second fiscal quarter was US$12.49 billion, higher than analysts' expectations of US$12.06 billion. Of this, semiconductor solutions generated $7.2 billion in revenue, which was higher than the forecast of $7.12 billion. AI product revenue reached $3.1 billion.

Broadcom's net profit for the second fiscal quarter was $2.12 billion, and adjusted earnings per share were $10.96, higher than analysts' expectations of $10.80.

Broadcom also raised its performance guidelines for the current fiscal year. The estimated revenue for the fiscal year ending October this year is about 51 billion US dollars, higher than analysts' expectations of 50.58 billion US dollars, and higher than Broadcom's previous expectations of nearly 50 billion US dollars.

Meanwhile, in order to make its shares more attractive to retail investors, Broadcom also followed Nvidia's lead and announced that it will implement a stock split of 10 shares per share on July 15, with a quarterly stock dividend of 5.25 US dollars. Broadcom Chief Financial Officer Kirsten Spears said in a statement that the spin-off will “make it easier for investors and employees to hold Broadcom shares.”

Analysts believe that stock splitting of expensive stocks is often a positive sign of stock performance. Bank of America analysts said in a recent report that the average annual return after the company announced a stock split was 25%, far higher than the average return of 12% in the S&P 500 index.

Beneficiaries of the AI wave

Analysts believe that although Broadcom does not sell popular AI chips manufactured by Nvidia, the company has benefited greatly from the competition to build artificial intelligence systems.

Training large AI models requires the use of a large number of processors such as GPUs, NPUs, and LPUs from companies such as Nvidia and AMD — or XPUS, and connecting to these high-performance chips and transmitting data between them requires network chips such as Ethernet switches and routing — and this is an area where Broadcom excels, which has enabled the company to benefit a lot from the AI wave. As one of the largest companies in the semiconductor industry, Broadcom has climbed to the top of the industry through multiple acquisitions led by Chen Fuyang, making the company a barometer of overall chip market performance.

According to information, data center providers rely on Broadcom's custom chip design and network semiconductors to build artificial intelligence systems to reduce their dependence on expensive and tight supply Nvidia processors. During the quarter, Broadcom's semiconductor solutions division's revenue (including networking and custom chips) grew approximately 6% to $7.2 billion, higher than analysts' expectations of $7.12 billion.

Chen Fuyang said during the earnings call on the same day that the company is seeing “strong demand for AI networks and customized AI accelerators from hyperscale customers.” He pointed out, “As the deployment of AI data center clusters continues, Broadcom's revenue structure is gradually increasing towards network devices.”

“Next year, we expect all large-scale GPU deployments to take place over Ethernet. We expect the strong momentum of AI to continue.”

At the same time, the company also sells components for cars, smartphones, and internet access devices. In addition, Broadcom is also increasingly entering the software sector, including mainframe computers, network security, and data center optimization products. Also, as Apple is one of its main customers, Broadcom supplies the iPhone with key components. During earnings calls, Chen Fuyang usually updates the often controversial relationship between Broadcom and Apple, although he usually refers to “North American customers” or other vague descriptions.

There are many benefits to buying VMware

Semiconductor products accounted for 58% and infrastructure software for 42% of Broadcom's second-quarter revenue. Chip sales increased 6% to $7.2 billion.

Infrastructure software sales, on the other hand, soared 175% to nearly $5.3 billion. Chen Fuyang said that this is mainly because the enterprise software company VMware, which the company bought for $69 billion at the end of last year, boosted business growth.

Additionally, Broadcom manufactures customized data center artificial intelligence processors for Google and Meta Platforms, the parent company of Facebook, which is owned by Alphabet. Broadcom also manufactures networks and switching chips for all major cloud computing infrastructure providers. Broadcom has been the main manufacturer of Google's self-developed AI chip TPU, and this partnership has continued for about 10 years. Up to now, the two sides have cooperated to design sixth-generation TPU and are promoting mass production of sixth-generation TPU (3nm process).

It is generally believed that Google and Meta are Broadcom's top two customers, and Broadcom previously announced that the company already has the third-largest custom chip customer. Although the company did not clearly reveal who it was, many analysts believe that this “mystery buyer” is probably ByteDance. Citigroup's Christopher Danely analyst team believes that the third most mysterious customer is probably ByteDance.

Morgan Stanley analyst Joseph Moore said in an earlier report that Broadcom is “one of the strongest artificial intelligence companies” in the semiconductor industry. He rated Broadcom's stock as “overholding,” and his target price was $1,658.

By the close, Broadcom's stock price had risen 34% this year, almost doubling last year. In contrast, the much-publicized Philadelphia Semiconductor Index rose 32%.

edit/lambor