Broadcom Q4 profits exceeded expectations, with full-year AI revenue doubling and soaring 220%, rising 15% in after-hours trading | Earnings report insights

On December 12th, Thursday after the US stock market closed, Broadcom released its fourth-quarter financial report for the company ending November 3rd. Due to the recently concluded fiscal year's AI revenue growing by 220% year-on-year to reach $12.2 billion, and the revenue guidance for the next fiscal quarter meeting expectations, the stock rose nearly 5% in after-hours trading.

However, the adjusted net revenue for the fourth quarter was $14.05 billion, slightly below the expected $14.08 billion. Additionally, earlier reports indicated that Apple is close to replacing Broadcom's supply with its self-developed wireless chips for iPhones and home devices, which caused Broadcom's after-hours gains to narrow again.

Nevertheless, the CEO emphasized during the analyst call that "there are significant opportunities for AI chips in the next three years," and predicted that the company's "AI semiconductor business (will generate revenue) exceeding other businesses." Following this, Broadcom's stock quickly rose again in after-hours trading, increasing by 15%, which also boosted Micron Technology's stock by over 1%, NVIDIA by 0.7%, TSMC ADR by 0.8%, AMD by 0.6%, while NXP Semiconductors fell by over 0.4%.

Here are the key points from Broadcom's fourth-quarter financial report for fiscal year 2024:

1) Key Financial Data

Revenue: Increased by 51% year-on-year to $14.054 billion, with market expectations at $14.08 billion.

Net Profit: $4.324 billion under GAAP, $6.965 billion under non-GAAP.

Earnings Per Share: Adjusted non-GAAP diluted earnings per share were $1.42, exceeding analysts' expectations of $1.38.

Cash Situation: Cash generated from operating activities for the quarter was $5.604 billion, capital expenditures were $122 million, and free cash flow was $5.482 billion, accounting for 39% of revenue.

Shareholder Return: Quarterly common stock dividends increased by 11% from the previous quarter to $0.59 per share.

2) Segment Data

Semiconductor Division: Revenue for the fourth quarter increased by 12% year-on-year to $8.23 billion.

Infrastructure Software Division: Revenue for the quarter increased by 196% year-on-year to $5.82 billion.

3) Performance Guidance

Revenue: For the first quarter of fiscal year 2025 ending in February next year, revenue is expected to be $14.6 billion, a year-on-year increase of 22%, roughly in line with analysts' expectations of $14.61 billion.

Profit: The adjusted EBITDA for the next fiscal quarter is expected to account for 66% of revenue, one percentage point higher than the fourth quarter of fiscal year 2024.

4) Full-Year Data

Revenue: Fiscal year 2024 revenue increased by 44% year-on-year to a record high of $51.6 billion.

AI Revenue: Full-year AI revenue increased by 220% year-on-year to $12.2 billion, driving semiconductor business revenue to a new high of $30.1 billion

Profit: Adjusted EBITDA increased by 37% year-on-year, reaching a record high of $31.9 billion.

Broadcom Fiscal Year 2024 Total Revenue, Profit, and Semiconductor Revenue Hit New Highs, Optimistic About Custom AI Chip Demand in the Coming Years

In the earnings statement, Broadcom President and CEO Hock Tan stated that the infrastructure software segment's revenue rose to $21.5 billion in record fiscal year 2024, benefiting from the successful integration of VMware; $12.2 billion of the record semiconductor business revenue came from AI revenue, primarily due to leading AI XPU and Ethernet networking product offerings.

Broadcom CFO Kirsten Spears noted that free cash flow for fiscal year 2024, excluding restructuring, was strong at $21.9 billion. Based on this increased cash flow, the company raised its quarterly common stock dividend for fiscal year 2025 by 11% to $0.59 per share:

"The goal for fiscal year 2025 is an annual common stock dividend of $2.36 per share, which will set a new historical high for the company and mark the fourteenth consecutive increase in annual dividends since dividends began in fiscal year 2011."

On Thursday, it was reported that Apple's self-developed wireless chips will be launched in new products released in 2025, with chips for Apple iPhones and home wireless devices nearing a switch from Broadcom supply to self-developed products. Apple's self-developed wireless chip has the internal code Proxima and will be launched for iPad and Mac in 2026.

In response, Broadcom's CEO stated in the earnings call that the company is in a multi-year collaborative commitment with Apple, expecting the market demand for custom AI chips to reach $60 billion to $90 billion by 2027. Additionally, Broadcom has two additional super (computing) customers in the AI chip space, with new customers expected to generate revenue before 2027.

Market Optimistic About Broadcom Benefiting from AI Infrastructure Investment Demand, Competing with Nvidia for Custom Chips for Hyperscale Cloud Providers

Analysts pointed out that by spending $69 billion to acquire cloud computing company VMware, Broadcom has expanded from a chip manufacturer to a "technology group," becoming one of the highest market capitalization companies in the chip industry and a beneficiary of "AI infrastructure investment." The revenue scale of Broadcom's software segment is not far behind its semiconductor business, making its earnings guidance a bellwether for demand across the entire technology sector.

Broadcom's latest earnings report also shows that demand for artificial intelligence computing is offsetting slowdowns in other areas. The company's CEO admitted that revenue from AI semiconductor business will surpass other businesses, such as non-AI chip revenue, which is expected to decline in the first fiscal quarter of 2025.

Although Broadcom's stock fell more than 1% on Thursday, it has risen over 60% year-to-date in 2024, with investors flocking to the stock, betting on strong demand from cloud providers for Broadcom's custom artificial intelligence chips and networking equipment, which are favorable for generative AI infrastructure investmentThere are also analyses stating that large technology companies have been competing to reduce their reliance on Nvidia's expensive and supply-constrained artificial intelligence chips, thereby helping Broadcom produce advanced custom AI chips for hyperscale cloud providers:

As companies double down on investing in generative AI infrastructure, the demand for Broadcom's networking chips is also increasing, which help transmit the vast amounts of data used by AI applications like ChatGPT.

Although Broadcom faces fierce competition from Nvidia's Ethernet-based Infiniband products, it still benefits from the expansion of AI data centers, as it is one of the largest providers of advanced networking equipment.

Data center suppliers rely on Broadcom's custom chip designs and networking semiconductors to build their AI systems.

In addition, Broadcom also sells components for automobiles, smartphones, and internet access devices, with its foray into the software sector including mainframe computers, cybersecurity, and data center optimization products