Broadcom Bets Big on AI Amidst Chip Sales Dip

March 8, 2024

Amidst a challenging landscape for semiconductor sales, Broadcom Inc. (NASDAQ: AVGO) is eyeing a brighter future, hinging on the rapid expansion of AI technology. While recent financial results show a hiccup in chip sales and missing analysts’ marks, Broadcom’s savvy pivot towards AI demand is not just a buffer but a bullish bet on the burgeoning field.

A Silver Lining in AI for Broadcom

Broadcom’s latest earnings report delivered a mixed bag: semiconductor revenues stumbled to $7.39 billion, falling short of the anticipated $7.7 billion. Yet, all is not lost for the Apple Inc. (NASDAQ: AAPL) supplier and tech giant collaborator. The company stands firm on achieving a $50 billion sales target for fiscal 2024, finding solace in the surging AI sector, expected to fuel a significant portion of its revenue, now projected at 35%, up from the earlier forecast of 25%.

The Unexpected Ace: Infrastructure Software

In a striking turn of events, Broadcom’s infrastructure software division emerged as the unsung hero, with revenues tallying up to $4.57 billion and surpassing the expected $4.33 billion. This segment’s success is a testament to Broadcom’s strategic diversification, exemplified by its recent acquisition of software titan VMware, although at the cost of a temporary suspension of quarterly forecasts.

Broadcom’s Ties with Tech Titans

The company’s growth narrative is interwoven with strategic partnerships with the likes of Apple and Google. CEO Hock Tan emphasizes Broadcom’s “very deep strategic and multiyear relationship” with its major North American customer, likely referring to Apple in coded language. These alliances are crucial as Broadcom strengthens its foothold in the AI domain, supplying essential networking components and bespoke chip designs for powerhouse data centers driving AI innovations.

Near-term Challenges but Exciting Growth Prospect in the Long-term

For investors, Broadcom’s current scenario presents a complex tapestry. On the one hand, the underwhelming chip sales report is causing a slight dip in after-hours trading. On the other, there’s the undeniable promise of AI-driven growth and robust software segment performance. For those with a keen eye on tech and an appetite for long-term growth, Broadcom’s AI adventure might be a voyage worth embarking on. Yet, as always with the siren call of tech investments, caution is advised. The sector’s rapid pace and inherent unpredictability necessitate a measured approach, balancing the excitement of potential AI dividends with the sobering realities of market volatility.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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