Broadcom Inc. (AVGO) shares are having a rough Friday, giving back gains from the previous day despite delivering a strong fourth-quarter earnings report after Thursday's close. It's one of those classic market moments where good news somehow translates into selling pressure.
The Numbers Tell a Strong Story
Broadcom crushed expectations across the board. The company posted adjusted earnings per share of $1.95, comfortably ahead of the $1.86 consensus. Revenue came in at $18.01 billion, beating estimates of $17.49 billion. By any measure, these are solid results.
The real story here is AI. Fourth-quarter performance was powered by strong demand for AI-related semiconductors, with AI semiconductor revenue jumping 74% year-over-year. CEO Hock Tan attributed the growth to custom AI accelerators and Ethernet AI switches, adding that the company expects this momentum to carry into the next quarter.
Broadcom also demonstrated impressive profitability and cash generation. Adjusted EBITDA represented 68% of revenue, while free cash flow totaled $7.47 billion for the quarter. Cash and cash equivalents climbed to $16.18 billion at quarter-end, up from the previous quarter.
The company put some of that cash to work for shareholders, announcing a 10% dividend increase to $0.65 per share. Broadcom cited stronger cash flows as the reason, having generated $7.70 billion in cash from operations during the quarter while keeping capital expenditures relatively modest.
Looking Ahead
For the first quarter, Broadcom sees revenue of $19.10 billion, well above the consensus estimate of $18.26 billion. That's another beat before the quarter even starts.
Wall Street Responds
Analysts largely responded with enthusiasm, issuing a wave of price target increases:
- Keybanc analyst John Vinh maintained an Overweight rating and raised his price target from $460 to $500
- B of A Securities analyst Vivek Arya maintained a Buy rating and raised his target from $460 to $500
- Rosenblatt analyst Kevin Cassidy maintained a Buy rating and raised his target from $440 to $450
- Benchmark analyst Cody Acree maintained a Buy rating and boosted his target from $385 to $485
- Bernstein analyst Stacy Rasgon maintained an Outperform rating and raised his target from $400 to $475
The Price Action
At the time of writing, Broadcom shares were trading 10.8% lower at $362.88. Sometimes the market has a funny way of digesting good news.
