Market Insights

Broadcom reported Q3 2024 results on September 5, revealing robust growth across its business segments. Consolidated net revenue reached $13.1 billion, up 47% year-on-year, with operating profit increasing by 44%. CEO Hock Tan highlighted three key drivers: strong growth in AI revenue, accelerating VMware bookings, and a stabilization in non-AI semiconductor revenue.

Tan emphasized the ongoing success in the AI sector, stating, “AI revenue continues to grow and grow strongly.” Specifically, revenue from custom AI accelerators grew an impressive 3.5 times year-on-year, while networking solutions in this area also saw significant increases. The company is now forecasting Q4 AI revenue to exceed $3.5 billion, an increase from earlier expectations and marking total AI revenue of $12 billion for the fiscal year 2024.

In the software segment, VMware's contribution was a standout, showcasing a revenue increase of 200% year-on-year. “The transformation of the VMware business model continues to progress very well,” said Tan. The company is on track to achieve or potentially exceed its target of $8.5 billion in adjusted EBITDA within the next fiscal year.

CFO Kirsten Spears outlined the financial performance, noting gross margins at 77.4% and a quarterly free cash flow of $4.8 billion, indicating strong financial health. The expected revenue for Q4 is around $14 billion, representing a 51% year-on-year increase. Spears also pointed out a modest increase in dividends, signaling confidence in future profitability.

The discussion turned to market trends. Tan observed that the non-AI semiconductor sector has hit a low point but is showing signs of recovery. “We have reached the bottom in our non-AI markets and are expecting a recovery in Q4,” he explained. This viewpoint signals optimism for a more significant rebound as enterprise spending begins to increase.

Looking ahead, Tan stressed the strategic focus on leveraging AI infrastructure needs, particularly with hyperscalers. He noted that demand for semiconductors and custom silicon will likely grow as these companies continue to invest heavily in AI capabilities.

In summary, Broadcom's Q3 performance reflects strong growth driven by AI and software segments. The company is well-positioned to capitalize on ongoing trends in AI and cloud solutions while navigating through broader semiconductor market cycles. The outlook for Q4 and beyond remains positive, with expectations set for continued revenue growth and profitability improvements.