Broadcom Inc. (NASDAQ:AVGO) will announce its quarterly results after the closing bell on June 12, with analysts expecting year-over-year top-line growth of more than 37%. Its share price has soared over 25% so far in 2024, riding the wave of AI excitement. Consensus EPS Estimates are $10.84, while Consensus Revenue Estimates are $12.01 billion.
AI Contributions to Revenue
Because AI is on every investor’s lips, I will examine the company first for the chip technology in this sector.
In 2023, Broadcom had an extensive product range supporting AI applications. Keep in mind that a large number of different types of chips are pigeonholed in its revenues, as can be attested in its 10-K, and the actual segmentation is difficult. For comparative purposes to competitors, I have converted fiscal year data (ending October 31) to CY ending December 31.
For AI, I segment Broadcom into four segments:
- Data Centers are high-performance networking and storage solutions with a 2023 revenue of $1.5 billion.
- AI Accelerators and ASICs are custom ASICs and specialized AI accelerators for high-performance AI and machine learning applications, with a 2023 revenue of $0.8 billion.
- Networking Components are high-speed networking components for data transfer and processing in AI applications. Here’s where it gets tricky, and I separate out (excluding AI Ethernet) with 2023 revenues of $0.7 billion
- AI Ethernet are dedicated Ethernet solutions specifically for AI applications, with 2023 revenue of $1.2 billion.
For 2023, AI represented about 15% of FY 2023 semiconductor revenues of $28.2 billion or $4.2 billion. But for 2024, Broadcom hopes AI will grow to 35% of $31.1 billion, as shown in Chart 1.
Chart 1
In Table 1, I segment Broadcom’s AI revenues for CY 2023 and 2024.
5G Contributions to Revenue
On March 4, 2019, the first all-5G smartphone Samsung Galaxy S10 5G was released. Now five years later, according to The Information Network’s report Hot ICs: A Market Analysis of Artificial Intelligence (AI), 5G, Automotive, and Memory Chips,
In 2023, 64% of smartphones sold were 5G, as illustrated in Chart 1. But 5G growth is expected to be strong through the decade, reaching 97% in 2028.
Chart 2
The advent of 5G technology is ushering in a new era of connectivity, profoundly impacting various industries. From telecommunications and healthcare to the automotive sector, entertainment, and industrial IoT (Internet of Things), 5G’s high-speed, low-latency capabilities are unlocking unprecedented opportunities.
Thus, 5G cuts a wide swath of the technology in terms of the number of the broad range of applications and the large market size, from nearly $200 billion in 2023 to nearly $600 billion in 2028, as shown in Table 2.
As with AI, revenue segmentation, 5G is equally difficult. There are more components to 5G that Broadcom supplies chips, and outside AI, I have a broader latitude in my analysis.
In Table 3, I show Broadcom’s 5G Chip revenues for all applications. While each segment is $2 billion or less in 2023, total 5G revenues were $5.9 billion, but growing just 10.1% YoY.
Investor Takeaway
Based on my analysis and segmentation for CY 2023 and 2024, I’ve converted data for FY Q4 2023 and Q1 2024 into Table 4, estimating that Broadcom’s QoQ revenues will grow 38.8% in Q1, which will be reported during the earnings call on June 12.
Broadcom is unique. The company was formed in 1991 focusing on broadband communications, hence the name Broadcom. Through a series of strategic mergers, acquisitions, and spin-offs, the company has become a leader in the 5G chip market, second only to QUALCOMM Incorporated (QCOM), which I estimate had 2023 revenues of $15 billion in 2023.
Then through further strategic acquisition and amid changing market demands, Broadcom became a leader in AI by expanding its technology base. Broadcom acquired CA Technologies and Symantec’s Enterprise Security business. By collaborating with hyperscalers Alphabet Inc. (GOOG), (GOOGL), and Microsoft Corporation (MSFT), its data center solution grew strongly by developing custom AI accelerators and other AI-specific chips. Combining its business sectors such as AI Ethernet Solutions with Data Center Solutions enabled its products to handle AI workloads more effectively, hence expanding customer acceptance.
I continue to see demand strengthening in the smartphone market, and a recovery in data centers, and increased capex spend in data centers from major hyperscalers, including Google, Meta Platforms, Inc. (META), Microsoft, and Amazon.com, Inc. (AMZN). With AI in focus for the earnings call, and based on strong demand for other AI chip companies such as NVIDIA Corporation (NVDA) and Advanced Micro Devices, Inc. (AMD), I expect Broadcom to report strong revenues and earnings.
I rate Broadcom Inc. (AVGO) a Buy.
Read the full article here