Revenue grew by 48%, the light of AI has finally shone on Broadcom this time!

The light of AI is shining on Broadcom $Broadcom(AVGO.US) this time.

At 1 a.m. Beijing time on June 13, semiconductor company Broadcom released its Q2 2024 financial report. This quarter, Broadcom's revenue reached $12.487 billion, a 43% year-over-year increase, with adjusted net profit at $5.394 billion, up 20% year-over-year. Both metrics slightly exceeded Bloomberg consensus estimates.

As of writing, Broadcom's stock has surged over 13% intraday. Including today's gains, Broadcom's year-to-date increase has exceeded 50%.

Why is Broadcom performing so well?

The answer is the same as NVIDIA $NVIDIA(NVDA.US) and TSMC $Taiwan Semiconductor(TSM.US) — it's AI.

However, due to its enthusiasm for mergers and acquisitions, Broadcom is not a pure semiconductor company. Its current business mainly consists of two categories: semiconductor solutions and infrastructure software.

This quarter, Broadcom's semiconductor solutions revenue was $7.202 billion, up 6% year-over-year, in line with Bloomberg consensus estimates. Infrastructure software revenue was $5.285 billion, up 175% year-over-year, significantly exceeding market expectations.

It appears that the main driver of performance growth was infrastructure software, with the high growth in this segment stemming from the consolidation of VMware.

In fact, excluding VMware's contribution, Broadcom's revenue growth this quarter would have been 12%.

Compared to NVIDIA, this growth rate might seem insignificant, but Broadcom's complex business structure, with segments offsetting each other, still surprised the market when looking at its AI-related business alone.

Broadcom CEO Hock Tan stated that the company's AI product revenue reached a record $3 billion this quarter. He also predicted that Broadcom's total AI product revenue for fiscal 2024 would exceed $11 billion, which is the first reason for today's stock surge.

......

As an AI enabler, Broadcom is capitalizing on AI in multiple ways.

First, by facilitating connections: Broadcom's switch and router chips play a key role in AI workloads.

These technologies enhance data transmission speed and efficiency, meeting AI's demand for big data processing.

Second, through chip customization: Tech giants, aiming to reduce reliance on expensive NVIDIA chips, are building their own AI systems, with Broadcom as their partner.

For example, Broadcom has been the primary manufacturer of Google's custom AI chip, TPU. It is widely believed that Google $Alphabet(GOOGL.US) and Meta $Meta Platforms(META.US) are Broadcom's top two customers. Broadcom previously announced that it has secured a third major custom chip client.

Although the company has not disclosed the identity, Citigroup analysts speculate that the third mysterious client could be ByteDance.

Morgan Stanley analyst Joseph Moore, in a pre-earnings report, called Broadcom one of the strongest AI companies in the semiconductor industry. He set a price target of $1,658 for Broadcom, but after today's surge, Broadcom's stock has already surpassed this target.

.........

Beyond AI, Broadcom also delivered market-pleasing news in its earnings report: a stock split.

Like NVIDIA, Broadcom, with its stock price above $1,000, plans a 10-for-1 split to lower the investment threshold.

Stock splits are often seen as neutral numerical games, but Bank of America analysts noted in a recent report: Most companies that announce stock splits see an average return of 25% in the following year, far exceeding the S&P 500's average return of 12%.

NVIDIA's strong performance post-split seems to have turned stock splits into a bullish signal.

The stock split is the second reason for Broadcom's stock surge today!!

Broadcom did not provide guidance for the next quarter but raised its fiscal 2024 outlook. The company expects full-year revenue to reach $51 billion. This is the final reason for today's stock surge!