In late November, Broadcom Inc. (NASDAQ: AVGO) closed its $69 billion acquisition of VMware. The deal was announced in May 2022. The integration of VMware got a lot of attention in Broadcom’s fourth-quarter earnings release, despite having no impact on the quarter’s results.

What VMware brings to the party

In its earnings report, the company said VMware’s contributions to continuing operations’ results in fiscal 2024 would lift Broadcom’s revenue to about $50 billion for the year, 40% higher than 2023 revenue of $35.82 billion.

Broadcom also forecast that adjusted EBITDA would equal about 60% of the revenue forecast, or about $30 billion, up about 30% above 2023’s total of $23.21 billion.

After the VMware deal was sealed, Broadcom CEO Hock Tan said, “Our goal is to help customers optimize their private, hybrid and multi-cloud environments, allowing them to run applications and services anywhere.” Broadcom bought VMware for its cloud software and has consistently mentioned AI development as an area of growth.

Where AI fits in

Broadcom’s semiconductor segment accounted for 79% ($28.18 billion) of its total 2023 revenue. That’s up 9% year over year. On the company’s conference call Thursday afternoon, Tan said generative AI chip revenue equaled nearly $1.5 billion in the fourth quarter, 20% of Broadcom’s $7.38 billion semiconductor segment’s revenue.

In April of this year, the company introduced its Jericho3-AI network chip that can connect up to 32,000 GPUs (the speedy chips made by Nvidia, AMD, and a few others) into a single massive supercomputer. The chip reduced the time and expense required to train large AI models.

In November, Broadcom released a network switching chip, the Trident 5-X12, the includes a neural-network inference engine on the chip. Instead of pushing network traffic around in the standard way, which can lead to network congestion and slower performance, the new chip sees the pattern developing in real-time and calls on software procedures to alter the data flows and avoid the performance hit. (Apple could buy these 25 huge companies right now with cash.)

Broadcom’s outlook

Broadcom expects networking revenue to increase by 30% in fiscal 2024 from the 2023 total of around $8 billion. Wireless revenue of $2 billion in 2023 is forecast to be stable next year, thanks to a solid relationship with a “North American customer,” aka Apple.

The key to semiconductor sales growth is AI, however. Here’s a comment from Tan on the conference call:

[W]e forecast semiconductor solutions revenue to be up mid to high single-digit percent year on year. We expect revenue from generative AI to represent more than 25% of the semiconductor revenue, consistent with prior guidance, which more than offset the lack of growth from non-AI semiconductor revenue.

The company also announced a 14% increase in its quarterly dividend to $5.25 per share. Broadcom now pays an annualized forward dividend yield of around 2.3%.

Broadcom stock closed up more than 2% on Thursday. The stock traded up about 0.3% in Friday’s premarket session at nearly $925.00. The stock’s 52-week range is $540.92 to $999.87. Broadcom posted the high after it received China’s approval for the VMware deal.

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