Broadcom Inc. (AVGO.US) did not meet the market's "strict high expectations": Q4 performance was impressive but still declining, and AI chip backlogs were unable to catch up with high valuations.

After announcing its fourth-quarter performance, Broadcom Inc. (AVGO.US) saw its stock price fall in after-hours trading, as the chipmaker's artificial intelligence backlog orders were slightly weaker than expected. For the fourth quarter ending November 2, Broadcom Inc. reported sales of $18 billion, a 28% year-over-year increase, surpassing analysts' expectations of $17.5 billion. Excluding certain items, earnings per share rose to $1.95, higher than analysts' estimate of $1.87. Semiconductor business revenue reached $11.07 billion, a 34.5% increase year-over-year, while infrastructure business revenue grew 19% to $6.94 billion. Following CEO Hock Tan's comments on the analyst conference call, the company's stock fell more than 5% in after-hours trading, erasing earlier gains. Tan mentioned that the company currently has a backlog of AI product orders worth $73 billion, to be delivered over the next six quarters, a figure that disappointed some investors. However, Tan clarified that this is just a "floor." "We expect delivery volume to significantly increase over the next six quarters as more orders come in. Therefore, depending on the specific product, our delivery cycles could range from six months to a year," he said. While the company received $11 billion in orders from AI startup Anthropic PBC in the fourth quarter, Tan cautioned that overall profit margins are shrinking due to AI product sales. He noted that the $11 billion order from Anthropic in the fourth quarter was an addition to the $10 billion order in the third quarter. Tan also revealed that Broadcom Inc. signed another $1 billion customer order, without disclosing the identity of the customer. Looking ahead, the company expects first-quarter sales as of February 1 to be around $19.1 billion, compared to analysts' average estimate of $18.5 billion. First-quarter AI semiconductor revenue is expected to double year-over-year to $8.2 billion. The company also increased its quarterly dividend by 10% to $0.65 per share. Since the beginning of the year, Broadcom Inc. has seen its stock price surge by 75%, as investors bet on the company becoming a major beneficiary of increased spending in the AI sector. However, this has also pushed Broadcom Inc.'s stock valuation to historic highs, with a P/E ratio of around 42 times, compared to a 10-year average of 17 times. Currently, Broadcom Inc.'s valuation is above all "tech giants" except Tesla, Inc. Regardless of what the company says or reports, Broadcom Inc.'s hot stock market valuation may have reached a critical point where even surpassing performance expectations could become a selling point for the market. Broadcom Inc. benefits from the demand for its custom chips in large-scale data center construction, allowing it to gain a larger share in an industry dominated by NVIDIA Corporation. In the previous fiscal quarter, Broadcom Inc.'s AI chip revenue grew by over 70%, with growth rate increased by over 10 percentage points from the previous quarter. Recently, Broadcom Inc. has attracted attention largely due to its partnerships with some large AI model providers. The developer of ChatGPT, OpenAI, signed an agreement with Broadcom Inc. to use its products in the design of its AI chips. As part of the deal announced in October, ChatGPT's manufacturer will use custom chips and network components to support its AI services. This deal will bring additional revenue to Broadcom Inc.'s custom chip division and allow it to further penetrate the booming AI market. Despite the growth in Broadcom Inc.'s AI computing revenue, it has been trailing behind NVIDIA Corporation in the field of AI processors. In another deal, Anthropic agreed to use Google Cloud TPU computing services worth billions of dollars, which also rely on Broadcom Inc.'s design, further fueling investor enthusiasm for the chipmaker's AI prospects. Emarketer analyst Jacob Bourne said, "Given Alphabet Inc. Class C's position, Broadcom Inc. is set to benefit from the growing demand for specialized, energy-efficient chips, while its network product portfolio also makes it a key supplier supporting large-scale data center construction for AI infrastructure." If Broadcom Inc.'s AI business can achieve its long-term financial goals, CEO Tan stands to receive a hefty reward. If AI business revenue reaches $90 billion in the 2030 fiscal year, Tan will receive 610,521 shares of Broadcom Inc. stock. Based in Palo Alto, California, the company has a wide product line covering communication chips, network components, and software. In order to earn more revenue from the AI sector, Broadcom Inc. has been upgrading its network equipment to accelerate data transfer speeds within and between data centers. As AI models become more complex, the ability to connect chips, server racks, and entire data centers becomes increasingly important. Broadcom Inc. collaborates with super-sized cloud service providers such as Alphabet Inc. Class C and Meta Platforms (META.US) to design and manufacture custom AI processors (Application-Specific Integrated Circuits, ASICs), providing an important alternative to NVIDIA Corporation's GPUs.