Is this the cheapest AI stock of the day?
Broadcom promised to quadruple revenue from AI chips and trades at twelve times future earnings. The stock is still falling. The reason lies in who is going to pay for those chips - and who is lending him the money for them.
Key points
Broadcom reported record revenue, record profit and record cash flow. The stock has fallen for the third time in a row after results that beat expectations.
According to the company's own outlook, the stock trades at less than twelve times 2028 earnings. That's how the market values banks, not AI leaders.
The official reason for the drop is a difference of 250 million dollars in the outlook. That's 0.7% of revenue. The real reason didn't appear in the stock market reports.
The company's CEO compared his key customers to "geniuses in the middle of Outer Mongolia" on a conference call. That sentence explains more than the entire earnings report.
There are two scenarios of how it all plays out, and three signals by which you can tell which one is currently happening.
A record quarter, after which it was sold
Broadcom $AVGO announced numbers on Wednesday evening that most companies in the world would not be ashamed of even in their dreams. Revenue for the third fiscal quarter rose 86% to 29.6 billion dollars, AI chip revenue jumped 221% to 16.7 billion dollars, and the company generated record free cash flow of 13.7 billion. Adjusted earnings per share of 3.32 dollars beat analyst estimates.
Market reaction? The stock fell as much as 6% in after-hours trading before recovering some of the losses. And it's not the first time. After June's second-quarter results, which also beat expectations, the stock fell more than 12%. From a record close on June 2 above 480 dollars, it has lost about a quarter of its value.
While the S&P 500 index has added 12% this year and Nvidia 20%, Broadcom is holding at just 6%. For a company with a market value of around 1.75 trillion dollars (about 36 trillion crowns), which is the second most important supplier of AI infrastructure in the world after Nvidia, this is remarkably weak performance. Something doesn't add up.
The missing 250 million, which isn't the point at all
The official explanation is: the outlook disappointed. Broadcom expects revenue of 34.8 billion dollars for the fourth quarter, while analysts wanted to see around 35.05 billion. The difference is about 250 million dollars, or 0.7%. For a company that nearly doubled revenue in one year, that's a rounding error.