Why Broadcom Stock Went Down Today

Actions of Broadcom (AVGO -9.41%) they rallied on Friday after the semiconductor and software giant posted good but not good enough results in its fiscal third-quarter earnings report and guidance was weaker than expected.

As of 3:10 PM ET, shares were down 9.7% on the news.

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Broadcom can’t keep up with expectations

Broadcom’s quarterly results were solid, beating previous estimates, but the stock has already soared this year on high hopes for the AI ​​boom, and the results didn’t seem to live up to those heightened expectations.

Revenue in the quarter rose 47% to $13.07 billion, boosted by the acquisition of virtualization software specialist VMare late last year. This result essentially matched the analyst consensus of $13.03 billion.

Revenue from semiconductor solutions, the part of the business unaffected by the VMware deal, rose just 5 percent to $7.27 billion, but the company said demand for custom AI data center accelerators and Ethernet network switches would help drive AI revenue to $12 billion for the year.

Broadcom continued to generate strong margins on an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) basis, with adjusted EBITDA of $8.22 billion, or 63% of revenue. Bottom line, it reported adjusted earnings per share of $1.24, up from $1.05 in the year-ago quarter and slightly above estimates of $1.22.

What’s next for Broadcom?

Looking to the current quarter, Broadcom expects revenue of about $14 billion, up 51% from a year ago, although that was slightly below the consensus of $14.13 billion. It also estimated an adjusted EBITDA margin of 64%.

There was nothing alarming about the report that would cause investors to sell the stock or change their view on it. In addition, the broader sell-off in tech stocks following a weak jobs report could have pushed Broadcom shares lower than they otherwise would have disappeared.

Overall, VMware’s integration appears to be going smoothly, and the company is well-positioned for generative AI growth.

At a forward P/E of 29, the stock trades at a reasonable price for its growth potential in AI and beyond.