Shares of computer chipmaker Broadcom Inc. wavered up and down in extended trading today after it reported strong financial results and guidance for the coming quarter.

The company reported a fiscal second-quarter net income of $3.48 billion, up from a profit of $2.52 billion one year ago. Earnings before certain costs such as stock compensation came to $10.32 per share, while revenue rose 8% to $8.73 billion. They were strong results, with Wall Street analysts targeting earnings of just $10.12 per share on sales of $8.7 billion.

Broadcom Chief Executive Hock Tan (pictured) said in a statement the company has been seeing strong demand driven by next-generation technologies from hyperscale data center providers, together with sustained demand from enterprises and service providers. “Our third-quarter outlook projects year-over-year growth, reflecting continued leadership in networking as we support a measured ramp into large-scale AI networks,” Tan said.

Tan elaborated on his statement in a conference call with analysts, saying he expects more than a quarter of Broadcom’s fiscal 2024 revenue will derive from generative AI models such as OpenAI LP’s ChatGPT. “Our revenue today, from this opportunity, represents about 15% of our semiconductor business,” he explained.

Those comments sent Broadcom’s stock up more than 4% initially in the after-hours trading session, but the gains evaporated quickly as analysts asked whether Broadcom would have to sacrifice other aspects of its business to meet the demand for generative AI.

Tan said he “did not see cannibalization,” but warned that generative AI is still in its “early innings” and said “budgets don’t change that rapidly.” Altogether, he said, about half of Broadcom’s growth in fiscal 2024 will come from generative AI, with the rest coming from its traditional business segments.

Broadcom offered a strong forecast for the third quarter, predicting revenue of $8.85 billion, above the consensus estimate of $8.72 billion. However, it wasn’t enough to prevent the company’s stock from ultimately losing ground, and it was trading down almost 2% at the time of writing, at $789.95.

The company said its main infrastructure unit, which includes sales of computer chips, storage arrays and networking gear, delivered revenue of $6.81 billion during the quarter. It also has a sizable software business focused on mainframes, cybersecurity and data centers, which generated $1.89 billion in sales. The numbers from both segments were strong, beating Wall Street’s targets of $6.8 billion and $1.88 billion, respectively.

“Broadcom’s growth across sectors and higher guidance of $8.85 billion is attributed to its successes within data centers with its Tomahawk product line, the growing demand for AI, and this big market push by hyperscaler clients,” said Third Bridge analyst Lucas Keh.

Broadcom’s stock has been one of the best performing of any chipmaker recently, rising more than 41% in the year to date. In contrast, the S&P 500 Index has grown by just 10%, while the technology-heavy Nasdaq Composite is up 25% and the PHLX Semiconductor Index has risen 38%.

“Hock Tan and his team is doing something right that the rest of the semiconductor industry has not figured out,” said Holger Mueller of Constellation Research Inc. “Yet again it managed to find growth, getting more profitable in the process. The semiconductor industry follows a volatile curve that resembles a roller-coaster, but it doesn’t seem to affect Broadcom.”

Last week, Broadcom’s stock briefly hit a record high of $812.73 after disclosing a multibillion-dollar, multiyear deal with Apple Inc. to supply it with certain components for iPhones. “Broadcom’s recent multibillion dollar deal with Apple positions it to cater to long-term domestic wireless chip demand,” Keh said.

Photo: Wikimedia Commons