Broadcom shares surged more than 14% in extended trading Wednesday after the chip and software maker delivered better-than-expected quarterly results, driven by strong artificial intelligence and VMware demand. Broadcom also raised its full-year outlook and announced a 10-for-1 stock split. Revenue in the Club name’s fiscal 2024 second quarter ended May 5 increased 43% year over year to $12.5 billion, outpacing analysts’ forecasts of $12.06 billion, according to estimates compiled by LSEG, formerly Refinitiv. Excluding the contribution from VMWare, Broadcom’s sales rose 12% year over year. Adjusted earnings per share (EPS) grew 6% from last year to $10.96, which exceeded expectations of $10.85. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $7.43 billion in the quarter, beating the $7.05 billion predicted by Wall Street. Broadcom 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 reasonable price-to-earnings ratio relative to other chip stocks. The company also has a shareholder-friendly capital allocation strategy with its dividends and buybacks. Competitors : Marvell Technology, Advanced Micro Devices and Nvidia Last buy : Oct. 3, 2023 Initiation date : Aug. 24, 2023 Bottom line This was a strong quarter for Broadcom that cemented our thesis in the company. Broadcom’s AI-related business saw a continued surge in sales, with management raising its full-year outlook to $11 billion backing up our view that this is one of the best AI chip stocks in the market. While the rest of its legacy semiconductor business continues to struggle, there are hopeful signs of bottoming over the next few quarters, setting up for a recovery next year. We also continue to see upside in VMware. The progress Broadcom has made so early in the integration is very encouraging, but we never had a doubt based on management’s experiences with mergers. CEO Hock Tan and his team do an exceptional job finding strong businesses to acquire that can generate both revenue and cost synergies (by slashing costs), thereby generating more free cash flow which it uses to increase dividends, repurchase stock, and find more companies to acquire. To top it all off, Broadcom announced a 10-for-1 forward stock split that will go into effect after the close of July 12. As we’ve said before, in theory stock splits shouldn’t matter. But if you look at the reception Lam Research , Chipotle , Walmart , and most recently fellow Club chipmaker Nvidia, have had with their splits, they clearly don’t hurt. And it’s a good thing that Broadcom wants to make its stock more accessible to investors and employees. As a result of the beat, raise, and stock split (which you cannot deny has had a positive…
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