Shares of Broadcom (NASDAQ: AVGO) were heading lower 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 p.m. ET, the stock was down 9.7% on the news.
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Broadcom can't keep up with expectations
Broadcom's quarterly results were solid, edging past 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 jumped 47% to $13.07 billion, aided by its acquisition of virtualization software specialist VMare late last year. That result essentially matched the analyst consensus at $13.03 billion.
Revenue from semiconductor solutions, the side of the business unaffected by the VMware deal, rose just 5% to $7.27 billion, but the company said demand for custom accelerators for AI data centers and ethernet networking 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. On the bottom line, it reported adjusted earnings per share of $1.24, up from $1.05 in the quarter a year ago, and slightly ahead of estimates at $1.22.
What's next for Broadcom?
Looking ahead to the current quarter, Broadcom expects revenue around $14 billion, up 51% from a year ago, though that was slightly below the consensus at $14.13 billion. It also forecast an adjusted EBITDA margin of 64%.
There wasn't anything alarming in the report to cause investors to sell the stock or change their thesis on it. Additionally, the broader sell-off in tech stocks on a weak employment report could have pushed Broadcom stock lower than it would have otherwise gone.
Overall, the VMware integration seems to be going smoothly and the company is well positioned for the growth of generative AI.
At a forward P/E of 29, the stock trades at a reasonable price for its growth potential in AI and beyond.
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Jeremy Bowman has positions in Broadcom. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy .
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