Shares of Broadcom (NASDAQ:AVGO) charged sharply higher on Friday, with a jump of as much as 22.7%. At 10:35 a.m. ET, the stock was still up 21.5%.
The catalyst that sent the artificial intelligence (AI) specialist to the next level was Broadcom’s strong financial results, fueled by robust demand for AI.
For the fourth quarter of 2024 (ending November 3), Broadcom generated revenue that rose 51% year over year to $14 billion. This drove adjusted earnings per share (EPS) up 31% to $1.42.
Against expectations, results were mixed, although profitability was stronger than many expected. For context, the analyst consensus estimates revenue of $14.1 billion and earnings per share of $1.39.
Management pointed to a surge in demand for AI products driving the results. AI networking revenues increased 158% year over year. The company noted that sales of custom accelerators (XPUs) doubled, while revenue from connectivity products quadrupled.
For the coming first quarter, Broadcom expects revenue of $14.6 billion, higher than Wall Street expectations of $14.47 billion. Management also expects margins to expand, raising adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to 66% of sales, up from 65% in the current quarter.
Broadcom makes many of the additional products used in data centers, where most AI processing takes place. The writing was on the wall earlier this year when continued strong business and financial results pushed the stock price higher, prompting the company to initiate a 10-for-1 stock split, which closed in July.
Management clearly expects this strong demand to continue, forecasting AI revenues of $60 billion to $90 billion in fiscal 2027. That equates to growth of between 391% and 638% over the next three years, up from $12 .2 billion in AI revenue in the fiscal year. 2024. This could be conservative as Broadcom announces the addition of two new hyperscale customers (not included in the forecast), which could further boost growth.
Broadcom shares currently trade at 36 times forward earnings. While that’s admittedly a premium, it’s a fair price to pay for a company that’s growing like gangbusters and providing the critical infrastructure needed to fuel the AI revolution.
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