Friday Sep 1 2023 11:57
4 min
Broadcom Inc. (AVGO), a major chip supplier for Apple (AAPL) and a wide range of technology companies, has issued a less optimistic forecast for the current period, indicating a sluggish demand for electronic components.
The company's latest earnings report predicted revenue of approximately $9.27 billion in the fiscal fourth quarter (Q4), slightly below the average Wall Street estimate of $9.28 billion, with some analysts forecasting as much as $9.8 billion. This projected growth rate would be the slowest since 2020.
Broadcom's outlook revealed that it is currently facing a broader slowdown in spending, even as certain areas of the industry experience increased demand due to the artificial intelligence (AI) boom. The firm is a crucial supplier for Apple's iPhone, which has seen declining sales. It is also dominant in the market for semiconductors, which facilitate data traffic in large data centers — spending in this sector, however, has been inconsistent.
Following the release of the quarterly report, Broadcom's stock fell by more than 4% in late trading on Thursday, August 31, as per Marketwatch data. Despite a 65% increase in Broadcom shares year-to-date (YTD) and a growth of 8% this week alone, in line with the broader chip stock trend, the latest news has had a negative impact, with the stock slipping to $880 in after-hours trading.
One bright spot for the firm is the AI market, with Broadcom CEO Hock Tan expecting AI-related revenue to grow rapidly and soon account for over a quarter of total sales. Tan noted healthy demand for next-generation technology among major cloud computing providers, particularly in expanding AI clusters within data centers. However, this growth is currently overshadowed by the wider industry slowdown.
“People were hoping for more given the hype around AI,” Stacy Rasgon, an analyst at Sanford C. Bernstein & Co., said on Bloomberg Television.
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While Broadcom has diversified into software for large corporations in addition to its chip offerings, its results serve as a barometer for technology spending. Despite Broadcom's growth slowing significantly compared to the levels seen during the pandemic, the company's sales in the last quarter exceeded expectations by a slight margin. In the fiscal third quarter, which concluded on July 30, Broadcom reported a profit of $10.54 per share, excluding certain items. The firm’s revenue grew by a 4.9%, reaching $8.88 billion. Analysts had previously estimated earnings of $10.43 per share and sales of $8.87 billion.
Unlike its peer Nvidia (NVDA), which has experienced rapid sales growth due to high demand for its AI accelerators — NVDA has been the S&P500’s top performer this year — Broadcom's revenue still relies heavily on markets with slower or stagnant growth, including the smartphone industry.
Broadcom's chip business performed slightly better than anticipated, but its overall growth is hampered by a broader industry slowdown. The company's future growth is expected to be driven by AI-related spending, while its wireless unit is set to improve compared to the previous quarter, although it will remain down from the previous year.
According to market data aggregator TipRanks, 14 surveyed Wall Street analysts offering 12-month price targets for the stock indicated an average Broadcom price target of $915.08 with a high forecast of $1,050.00 and a low forecast of $800.00. The average AVGO price forecast represents a -0.85% change from the last closing price of $922.89.
Analysts are yet to update their Broadcom stock forecasts following the release of the report on August 31.
When considering Broadcom stock price forecasts, remember that trading involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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