Fabless chip and software maker Broadcom (NASDAQ:AVGO) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 24.7% year on year to $14.92 billion. Guidance for next quarter’s revenue was better than expected at $14.9 billion at the midpoint, 0.5% above analysts’ estimates. Its non-GAAP profit of $1.60 per share was 6.1% above analysts’ consensus estimates.
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Broadcom (AVGO) Q4 CY2024 Highlights:
- Revenue: $14.92 billion vs analyst estimates of $14.61 billion (24.7% year-on-year growth, 2.1% beat)
- Adjusted EPS: $1.60 vs analyst estimates of $1.51 (6.1% beat)
- Adjusted EBITDA: $10.08 billion vs analyst estimates of $9.66 billion (67.6% margin, 4.4% beat)
- Revenue Guidance for Q1 CY2025 is $14.9 billion at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for Q1 CY2025 is $9.83 billion at the midpoint, above analyst estimates of $9.51 billion
- Operating Margin: 42%, up from 17.4% in the same quarter last year
- Free Cash Flow Margin: 40.3%, up from 39.2% in the same quarter last year
- Inventory Days Outstanding: 36, down from 47 in the previous quarter
- Market Capitalization: $900.8 billion
"Broadcom's record first quarter revenue and adjusted EBITDA were driven by both AI semiconductor solutions and infrastructure software. Q1 AI revenue grew 77% year-over-year to $4.1 billion and infrastructure software revenue grew 47% year-over-year to $6.7 billion," said Hock Tan, President and CEO of
Company Overview
Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate spanning wireless communications, networking, and data storage as well as infrastructure software focused on mainframes and cybersecurity.
Processors and Graphics Chips
The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Broadcom’s sales grew at an exceptional 19.2% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers, a great starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Broadcom’s annualized revenue growth of 25.9% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. 
This quarter, Broadcom reported robust year-on-year revenue growth of 24.7%, and its $14.92 billion of revenue topped Wall Street estimates by 2.1%. Company management is currently guiding for a 19.3% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 16.9% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is attractive given its scale and implies the market sees success for its products and services.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Broadcom’s DIO came in at 36, which is 26 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.
Key Takeaways from Broadcom’s Q4 Results
We were impressed by Broadcom’s strong improvement in inventory levels. We were also glad its revenue and EPS outperformed Wall Street’s estimates this quarter. Looking ahead, while next quarter's revenue guidance was just in line, Q1 EPS guidance came in above Consensus estimates. Zooming out, we think this was a solid quarter. The stock traded up 8.7% to $195.11 immediately after reporting.
Broadcom put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
