Broadcom (AVGO), AI Chip Sales Soar 221%...Stock Price Takes 'Cautious Steps'

▲ Broadcom (AVGO), Artificial Intelligence (AI)/AI-generated image

Broadcom (AVGO)'s artificial intelligence (AI) chip sales surged by 221%, exceeding expectations in the semiconductor market.

According to Barron's on September 2 (local time), Broadcom recorded Q3 revenue of $29.6 billion, an 86% increase year-over-year. Adjusted earnings per share (EPS) jumped from $1.69 to $3.32. The adjusted operating margin was approximately 68%.

The core driver behind the improved performance was the AI chip business. Q3 AI chip sales skyrocketed to $16.7 billion, a 221% increase from the same period last year, surpassing both company and Wall Street estimates. Broadcom forecasts that the AI chip sales growth rate will increase to 236% in Q4.

The long-term outlook is even more aggressive. Broadcom expects AI chip sales to reach $115 billion in fiscal year 2027 and expand to $230 billion in fiscal year 2028. The overall Q4 revenue forecast of $34.8 billion slightly exceeded market expectations.

However, investor caution has not entirely disappeared. Broadcom's projected Q4 adjusted operating margin of 66% was 0.5 percentage points lower than market expectations. The stock price had fallen 26% from its June high. A $29 billion lease obligation linked to data center investments was also cited as a burden.

Changes in business with key AI customers are also a variable. Google recently signed a new chip design contract with Marvell. Barron's reported that the possibility of this putting pressure on Broadcom's future revenue is a market concern. This is the reason why the stock price did not find a clear direction after the earnings announcement, despite strong AI chip growth.

[Key Article Summary]

-Broadcom's Q3 AI chip sales surged to $16.7 billion, a 221% increase year-over-year.

-The company expects AI chip sales to expand from $115 billion in 2027 to $230 billion in 2028.

-Despite strong growth prospects, the profitability outlook, a $29 billion lease obligation, and changes in customer relationships remain factors of investor caution.

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