Broadcom expects $10 billion in revenue

Broadcom announced on Thursday that it is anticipating $10 billion in revenue from artificial intelligence-related chips this year.

However, the company’s stock experienced a decline following a full-year forecast that did not meet investor expectations. Marvell Technology, a smaller competitor, also saw its stock drop by over 6% in extended trading after forecasting revenue below market expectations.

Both Broadcom and Marvell are closely monitored by investors who are optimistic about their potential to benefit from the growth in AI technologies, such as OpenAI’s ChatGPT and Google’s Gemini. Both companies specialize in selling networking chips that facilitate the movement of large volumes of data required for AI computing, as well as assisting clients in designing customized AI chips.

During an earnings call with analysts, Broadcom’s CEO Hock Tan mentioned that a significant portion of the firm’s AI chip revenue in 2024 is expected to come from collaborating with two major clients on custom AI chip designs. While Tan did not disclose the names of these clients, analysts widely speculate that they are Google and Meta Platforms.

Tan also said that the custom chip business “can command margins similar to our corporate gross margin.” That gross margin was around 75% on an adjusted basis for the fiscal first quarter.

Despite not revising its annual revenue forecast of $50 billion, Broadcom’s stock experienced a slight decline in after-hours trading, disappointing investors who were anticipating growth of 40%.

The company’s stock had surged by 26% in 2024, largely driven by optimism surrounding AI, but the failure to raise its forecast led to a minor dip in after-hours trading.

For companies whose chips are more tangentially related to the AI gold rush, there will inevitably be starts and stalls in growth rates that cannot easily be mapped to the big AI trends, said Bob O’Donnell of TECHnalysis Research.

Broadcom and Marvell experienced significant gains, with both companies surging over 4% and reaching all-time highs prior to their financial results.

Broadcom, in particular, has been recognized for benefiting from the growing demand for generative AI in the technology sector. This is due to increased investments by major players like Microsoft in data centres, where Broadcom is a key supplier of networking chips.

For the fiscal first quarter ended February 4, Broadcom’s AI revenue quadrupled from a year earlier to $2.3 billion during the quarter, more than offsetting the current cyclical slowdown in enterprise and telcos, Tan added.

Additionally, revenue from the semiconductor solutions segment rose by 4% to $7.39 billion, slightly below the Visible Alpha estimates of $7.45 billion.

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