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The fourth-quarter results, released on December 11, showed impressive performance, with sales and profits surpassing Wall Street’s expectations.
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Nonetheless, there were concerns from investors regarding management’s forecast on gross margins for the first quarter.
Broadcom shares, identified under NASDAQ: AVGO, have recently faced a decline. In December, the semiconductor infrastructure software sector saw a drop of 14.1%, as noted by S&P Global Market Intelligence.
For context, the S&P 500 index was nearly flat last month, returning 0.06%, while the Nasdaq Composite experienced a slight negative return of around -0.5%.
Despite the drop, Broadcom’s stock enjoyed a solid 50.4% return for the year, outpacing both the S&P 500 and Nasdaq Composite, which returned 17.9% and 21.1%, respectively. Interestingly, Broadcom also outperformed major players in AI, such as Nvidia, which had a return of 38.9% for the year.
So, why did Broadcom stock decline by 14.1% last month?
On December 12, Broadcom’s stock dropped 11.4% following the release of its fiscal Q4 report (for the period ending November 2) the day prior. The quarterly results showcased significant growth, with revenues climbing 28% year-over-year to $18.02 billion, largely driven by a remarkable 74% surge in AI semiconductor sales. Analysts had anticipated revenues of around $17.5 billion.
Broadcom is actively engaged in creating custom AI chips and application-specific integrated circuits (ASICs) for multiple high-tech companies, in addition to supplying networking products for AI data centers.
Adjusted net income for the quarter was reported at $9.71 billion, or $1.95 per share, representing a 37% increase compared to the same time last year. Analysts expected an adjusted EPS of $1.87.
The disappointing factor for investors was management’s forecast regarding the gross margin for Q1. They indicated an expected decrease of about 100 basis points (1 percentage point) from the fourth quarter result of 77.9%.
This anticipated decline is attributed to the product mix shift, as AI chip sales are booming, yet their gross margins tend to be lower in comparison to infrastructure software, which is experiencing slower growth.
