Semiconductor stocks have been one in all the main drivers of the markets for years on this digital age. Nevertheless, the past few years have been particularly strong with the emergence of artificial intelligence (AI) and the high demand for chips that may handle more complex AI-related tasks.
In January, global semiconductor sales totaled $47.6 billion, jumping 12.5% 12 months over 12 months but dropping 2.1% from December. The market looked as if it would take a glass-half-empty view of that news as most semiconductor stocks dipped after the Semiconductor Industry Association announced the numbers Monday afternoon.
There was more pessimism toward semiconductor stocks after two major chipmakers, Broadcom (NASDAQ:AVGO) and Marvell Technology (NASDAQ:MRVL), posted earnings on Thursday afternoon and saw their share prices drop Friday morning. Is that this reflective of a bigger trend within the industry, or is it a more isolated short-term response? Let’s take a better look.
While each semiconductor corporations met or exceeded earnings and revenue estimates in essentially the most recent quarter, their stock prices each plunged on Friday. Marvell was down by about 9% to around $77 per share as of 1 p.m. Eastern, while Broadcom was off greater than 6% to $1,317 per share.
The first negative catalyst for each firms gave the impression to be their outlooks. For instance, Marvell is targeting net revenue of around $1.15 billion in the primary fiscal quarter. That’s well below the $1.426 billion in net revenue it recorded within the fourth quarter and lower than analysts had anticipated.
Further, Marvell’s gross margin is predicted to be in a variety between 44.5% and 47.2%, in comparison with 46.6% in Q4, while adjusted earnings is estimated at 23 cents per share, which is significantly below the 40-cent-per-share consensus estimate.
The outlook for Broadcom also disillusioned investors, however the explanation why usually are not as clear. The corporate reiterated its revenue outlook for fiscal 2024 at $50 billion, which can be about 40% higher than the $35.8 billion in revenue it generated within the last fiscal 12 months.
The key drivers are expected to be Broadcom’s AI chips, that are projected to account for $10 billion of the $50 billion in revenue, and its recent acquisition of cloud-computing firm VMware. Within the fiscal first quarter alone, Broadcom generated $2.3 billion in revenue from its AI chips — 4 times greater than the identical quarter a 12 months ago.
The chipmaker also maintained its guidance for adjusted EBITDA of around $30 billion, up from $23.2 billion within the previous fiscal 12 months. That figures to be roughly 60% of its total revenue, down from 65% within the last fiscal 12 months.
“We’re pleased to have two strong drivers of revenue growth for Broadcom in the primary quarter and financial 12 months 2024,” said Hock Tan, president and CEO of Broadcom, within the earnings release. “First, our acquisition of VMware is accelerating revenue growth in our infrastructure software segment, as customers deploy VMware Cloud Foundation. Second, strong demand for our networking products in AI data centers, in addition to custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment.”
Selloff not necessarily a foul thing
The market looked as if it would overreact today to Broadcom particularly. The outcomes and outlook for Marvell are just a little more worrying, as its revenue growth is coming entirely from its AI segment, while its other businesses have struggled to generate revenue gains.
Nevertheless, the selloff will not be a completely bad thing, particularly for Broadcom, which looks just like the higher stock of the 2. That’s because Broadcom has gotten costlier, with its share price rising 104% in 2023 and one other 21% this 12 months, including Friday’s drop. The value-to-earnings ratio has climbed to 42 from about 21 a 12 months ago, while the forward P/E has jumped to 30 from 18 in November.
Broadcom stock was sure to chill off a bit, so this is likely to be a response to that rising valuation. The corporate still has great earnings power, so it’s definitely one to carry. For those seeking to buy, it is likely to be a time to attend and see a bit to gauge where things will settle.
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