Broadcom Inc. AVGO stock rose over 14.4% in premarket on Friday after the management in its earnings call said that they saw a four-fold increase in AI connectivity revenue driven by Tomahawk and Jericho shipments. The management highlighted a significant reduction in VMware spending in the fourth quarter.
What Happened: The company doubled the AI XPU shipments to hyperscale customers, which signifies a growing need for specialized hardware to power AI applications.
“In Q1, we expect the momentum in AI connectivity to be as strong as more hyperscalers deploy Jericho3AI in their fabrics. Our next-generation XPUs are in three nanometers and will be the first of its kind coming to market in that process node,” said Hock E Tan, the president, CEO, and director.
Broadcom also said that customers are increasingly adopting private cloud environments on-premises using VCF. This shift has led to a significant reduction in VMware spending, down to $1.2 billion in the fourth quarter from $1.3 billion in the third quarter.
“We brought spending down to $1.2 billion in Q4, down from $1.3 billion in Q3. By reference, VMware spending was averaging over $2.4 billion per quarter prior to the acquisition with operating margin less than 30%,” Tan added during the earnings call.
The call also highlighted that VMware’s Annualized Billing Value (ABV) is expected to surpass $3 billion in the first quarter, up from $2.7 billion in the previous quarter.
Why It Matters: Broadcom reported quarterly earnings of $1.42 per share, which beat the analyst consensus estimate of $1.38. Quarterly revenue came in at $14.05 billion, which slightly missed the consensus estimate of $14.09 billion and is an increase over sales of $9.295 billion from the same period last year.
"Broadcom's fiscal year 2024 revenue grew 44% year-over-year to a record $51.6 billion, as infrastructure software revenue grew to $21.5 billion, on the successful integration of VMware," said Hock Tan, CEO of Broadcom Inc.
"Semiconductor revenue was a record $30.1 billion driven by AI revenue of $12.2 billion. AI revenue which grew 220 percent year-on-year was driven by our leading AI XPUs and Ethernet networking portfolio," Tan added.
Overall, the rapidly evolving AI landscape, with significant investments and advancements being made in AI hardware and networking infrastructure will be driving the future quarter.
See Also: Broadcom Reports Mixed Q4 Results: EPS Beat, Revenues Miss, Q1 Guidance In Line With Estimates
Price Action: Broadcom stock has gained over 66% year-to-date, outperforming the Nasdaq 100 index, which grew by 30.65% in the same period.
What Are Analysts Saying: According to Benzinga Pro data, the average price target of $215 based on the last three ratings from Rosenblatt, Citigroup, and UBS implies a 19% upside for Broadcom from its closing price on Thursday.
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