Broadcom's earnings report was 'just not enough': Analyst

Broadcom shares moved lower in after-hours trading on Thursday. The chip giant posted fiscal third quarter results that were better than Wall Street was expecting, but its Q4 revenue guidance of $14.0 billion fell short of the expected $14.13 billion.

Mizuho Americas tech, media, and telecom desk-based analyst Jordan Klein characterized the outlook as being "just not enough." "They beat this quarter's revenue, but the upside was all their software business. It was not the semiconductor business and that's going to be a disappointment," he says.

On the broader chip space, Klein argues that this earnings season has shown that outside of the AI-related products, "the broader trends in semis have not been great and, if anything, in areas like industrials and autos, they're weakening. Memory has slowed a bit from being white-hot earlier in the year." He adds that Broadcom's results are "showing investors you're not getting the kind of upside that would drive more money into the sector," and that there may be better opportunities in other areas of the market.

Watch the video above to hear what Klein has to say about what the guidance miss may mean for chip stocks going forward.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Stephanie Mikulich.

Video Transcript

Broadcom, beating estimates on the top and bottom line but reporting lacklustre fourth quarter revenue and guidance.

Mizuho America's desk based analyst Jordan Klein joins us now for more on Broadcom's latest quarter.

Jordan, it's good to see you.

So, uh, Broadcom reports the initial reaction here, uh, during the after hours is not great.

We're down about almost 6%.

But give us give us your take.

What did you make of the print, Jordan?

Yeah.

Thanks for having me.

I mean, in a nutshell, I would characterise it as just not enough.

Um, as you point out, they they beat this quarter's revenue.

But the upside was all their software business.

Uh, it was not the semiconductor business, and, uh, and that's gonna be a disappointment, I think.

More so, what you pointed out, the reason for selling in the aftermarket was the weaker guidance.

So, you know, semis are, you know, for sale largely the last few weeks.

And I think this is gonna create more selling pressure tomorrow.

And in the near term, the good news is, is that they raise the revenue they expect from a I from 11 to 12 billion.

Uh, but from talking to investors heading into this report.

That was well expected.

Um, so unless the CEO on the call can speak to, you know, an acceleration or improvement that they see beyond the October ending quarter, Um, I think this is gonna kind of be one of these names where people, you know, pull a little bit of money and rotate into some other areas of the market.

Hey, Jordan, it's Julie here.

Does this also illustrate Or maybe just remind folks that aside from a I the rest of the chip business is still pretty commoditized, Still pretty cyclical.

And are we gonna see Broadcom and other companies that whose majority of their business is still not a I sort of be penalised here.

Yeah, I think that that's kind of what we're learning and seeing more of, uh, throughout this recent earning season is that outside of these GP US or custom silicon, um, areas that, you know, these cloud hyper scalar are ploughing a lot of Capex spending into the broader trends in security.

Uh, sorry.

In semis have have not been great.

And if anything, in areas of like industrial and auto, they're weakening.

Um, memory slowed a bit from being white hot earlier in the year.

And I think you'll hear from the CEO on the Broadcom conference call that areas like storage, industrial and just traditional networking still are kind of bumping along the bottom.

Uh, one area that I'm keen to hear about is is their business for, uh, apple, um, where Apple is reportedly going to build more iPhones this year than last year.

Uh, see how they sound there.

But yeah, that's why I think you're gonna kind of see more muted reactions tomorrow if not a rotation from semis, which we've been seeing because these results are just showing investors you're not getting the kind of upside that would drive more money into the sector.

And they see probably better opportunities near term in other areas of tech or the broader market.

You know, uh, Jordan, there's a lot of bulls on this name in in in the street, and partially, you know that they'll often come back their confidence in the C suite here.

I'm just curious to get your take on on CO hock tan.

What you make of of his leadership, his strategy, his execution, Jordan.

Well, I would.

I would say he's best in class, you know, outside of Jensen and NVIDIA and Lisa Sue at a MD.

He's right up there if not on par with those CEO S. He's been with the company a long time.

Um, he is a He's delivered execution year after year.

Consistently.

If you look at the stock returns in Broadcom versus the semiconductor index, it's pretty much trounced, uh, the the its peer group.

So that's why I don't expect, even though the results are underwhelming, to see a lot of these big, large, chunky investors, for example, these bigger mutual fund holders panicking doing anything to to, you know, move away from Broadcom again.

The Sox had a great run.

It's up a fair amount this year.

It may pull back near term.

You're going to see kind of the more faster momentum money shift out thinking there's limited catalysts.

But at the end of the day, I think a lot of people put their faith in hock.

10.

Uh, he could do some say some things on the call that, you know, kind of help the stock.

Maybe tomorrow versus where it is now.

Uh, but that said, you know, again, I don't think he can pull a rabbit out of a hat and change the fact that the guides just below where people were expecting.

Yeah, I was gonna say, Jordan, do you think there's anything strategically that he can be doing differently, or is this just a matter of some of their end?

Markets are just not great right now.

Well, that's exactly what you just said.

It's some of their end markets are not great right now.

Um, he's gonna talk a lot about strength in the software business from VM Ware.

They're taking out a lot of costs.

They're raising, you know, the average revenue per user or customer by selling more to the existing customers.

Um, I think overall, he'll signal we see better times ahead.

We're still extremely positive and bullish on the growth from the A. I segment, um, investors kind of know that.

Expect that.

I think he reaffirms that, uh, that being said, there's one thing people are kind of hoping and waiting for.

I don't think we'll hear it on the call, but he's gonna get asked, and that's Do they have another large cloud?

Hyperscale customer that they're gonna build and design a chip for.

And, um, they've got three right now, and there's a lot of talk that they could win or get the 1/4.

And again, he doesn't really show his hands or his cards on a conference call for earnings.

But if he signals anything like we're close to signing something or working with others and just be patient, then I think that investors would buy this weakness quickly.

But outside of that, I think it's gonna be kind of a A, you know, modest pullback, at least near term.

All right, this Broadcom call starts in about 20 minutes.

We'll be listening.

Jordan, Thanks so much for being on the show.

Appreciate it.

You gotta thank you.