Broadcom reassured investors about its software business on its earnings call Wednesday, sending its shares up 6% in premarket trading.
CEO Hock Tan said that he expects infrastructure-software revenue for the current fiscal second quarter to grow 9% from the previous year to $7.2 billion, after growing just 1.4% in the first quarter to $6.8 billion.
"Let me reinforce that this growth in our infrastructure-software business reflects our focus and investments in foundational infrastructure, and our infrastructure software is not disrupted by AI," Tan said.
The company's first-quarter artificial-intelligence revenue grew 106% from the previous year to $8.4 billion, "driven by robust demand" for its custom AI chips and networking, Tan said in a statement.
"Our AI revenue growth is accelerating," he said, adding that AI-chip revenue is expected to be $10.7 billion in the fiscal second quarter.
With hyperscalers' capital expenditures expected to reach more than $600 billion this year, Andrew Rocco, a stock strategist at Zacks Investment Research, said Broadcom "is merely entering the early innings of its hypergrowth phase."
"I believe investors will gravitate toward the stock, because regardless of which software companies win the AI race, they are all investing in Broadcom's networking chips and custom accelerators," Rocco said in emailed comments following the report.
The chip maker set its second-quarter revenue guidance at $22 billion, topping the FactSet analyst consensus for $20.5 billion, and representing expectations for 47% growth from the previous year.
That would follow fiscal first-quarter revenue growth of 29% to $19.31 billion, which was slightly ahead of the FactSet consensus for $19.27 billion. Adjusted earnings rose to $2.05 per share from $1.60 a share, and beat expectations for $2.03.
Broadcom also announced a new share-repurchase program worth $10 billion, which represents about 0.7% of the company's market capitalization of $1.5 trillion as of Wednesday's close.
Ahead of the print, Paul Meeks, head of technology research at Freedom Capital Markets, said he was "a bit anxious about" how the stock would react to its earnings report and guidance, given that Nvidia's shares (NVDA) fell despite strong results late last month. Broadcom and Nvidia shares have both been laggards so far this year as investors look for other ways to play the AI opportunity.
However, Meeks's concerns were more tied to Broadcom's software segment, which made up 39% of its total revenue in the previous quarter. The software sector has been under immense pressure recently, as investors fear traditional software will be replaced by AI.
Broadcom's infrastructure-software net revenue came in at $6.8 billion for the fiscal first quarter, representing 35% of its total net revenue.
The company's shares had dropped 8.3% this year as of Wednesday's close.
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