Broadcom shares soared Thursday after the chipmaker demonstrated strong profitability in its fourth quarter and provided a slew of upbeat updates on its artificial intelligence business — a mix so good that investors looked past a minor sales miss. Revenue in the fiscal 2024 fourth quarter increased 51% year over year to $14.05 billion, missing analysts’ forecasts of $14.09 billion, according to estimates compiled by LSEG. Excluding the contribution from VMWare, Broadcom’s organic sales grew 11% year over year. Adjusted earnings per share (EPS) increased 28% from the year-ago period to $1.42, which exceeded expectations of $1.38, LSEG data showed. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $9.09 billion in the quarter, outpacing the $8.97 billion consensus estimate on Wall Street, according to FactSet. With shares up roughly 17% in premarket trading Friday, Broadcom is on track to open the regular session at a fresh all-time high above $200 apiece. The stock’s current record close of $185.95 was set on Oct. 9. AVGO YTD mountain Broadcom’s year-to-date stock move. Bottom line The headline numbers for the August-to-October quarter may have been mixed, but make no mistake, this was a very strong report. You wouldn’t understand just how strong, though, unless you listened to the earnings call. It is the latest example to support Jim Cramer’s long-held investing principle that investors need to wait for the call before making a post-earnings trade. Sure, Broadcom shares initially traded up on the release thanks to the earnings beat fueled by strong results for both gross and operating margin. However, the real move came during the call when CEO Hock Tan discussed Broadcom’s custom AI chip business, which currently serves three unnamed “hyperscale” customers and is key to our investment thesis. Those clients are widely believed to be Club names Alphabet and Meta Platforms — and more recently, TikTok parent ByteDance. In addition to strong demand from those three customers, Tan said Broadcom is now in advanced AI chip development with “two additional hyperscalers,” with hopes to turn them into revenue-generating customers before 2027. Tan’s disclosure came just one day after The Information reported that Club holding Apple was working with Broadcom on a custom chip for data centers. Considering that report, it stands to reason that Apple is one of those new customers. While Broadcom is abiding by the No. 1 rule of working with Apple — don’t ever mention Apple — the two California-based companies already work together on chips for the iPhone (more on that later). Broadcom (AVGO) Why we own it : Broadcom is a high-quality semiconductor and software company run by an incredible CEO in Hock Tan, who is best known for his value-creating M & A strategy. We view Broadcom as one of the biggest AI beneficiaries through its networking and custom chip businesses. The stock trades at a much more…
Read More: AI chipmaker Broadcom shares soar 17% despite mixed quarterly results —