Broadcom sees US$10 billion in AI chip sales in 2024, but shares dip
- Broadcom CEO Hock Tan said that about US$7 billion of the firm’s AI chip revenue in 2024 would come from helping just two major clients design custom AI chips
- For the first quarter, Broadcom’s AI revenue quadrupled from a year earlier to US$2.3 billion, more than offsetting the current cyclical slowdown in enterprise and telcos
Broadcom said on Thursday it expects US$10 billion in revenue from chips related to artificial intelligence (AI) this year, but its stock dipped after the tech company’s full-year forecast failed to impress investors.
Smaller rival Marvell Technology’s forecast revenue below market expectations, sending its stock down over 6 per cent in extended trading.
Both companies are being closely watched by investors who believe they will capture a piece of the boom in AI technologies, such as OpenAI’s ChatGPT or Google’s Gemini.
Broadcom and Marvell both sell networking chips that help move around the large amounts of data demanded by AI computing, and both also help clients design custom AI semiconductors
During an earnings call with analysts, Broadcom chief executive Hock Tan said that about US$7 billion of the firm’s AI chip revenue in 2024 would come from helping just two major clients design custom AI semiconductors. Tan did not name the customers, but analysts widely believe that they are Alphabet’s Google and Facebook owner Meta Platforms.
Tan also said that the custom chip business “can command margins similar to our corporate gross margin”. That gross margin was about 75 per cent on an adjusted basis for the fiscal first quarter. Reuters reported last month that Nvidia is looking to compete against Broadcom in the custom AI chip market.
Broadcom did not update its annual revenue forecast of US$50 billion, likely disappointing investors despite representing growth of 40 per cent.
A 26 per cent rally in Broadcom’s stock in 2024, fuelled largely by AI optimism, has come with high growth expectations for the Palo Alto, California-based company. The stock dipped more than 1 per cent in after-hours trading after not raising its forecast.
“For companies whose chips are more tangentially related to the AI gold rush, there will inevitably be starts and stalls in growth rates that can’t easily be mapped to the big AI trends,” said Bob O’Donnell of TECHnalysis Research.
Broadcom has been hailed as a beneficiary of a generative AI push across the tech landscape because Microsoft and other tech heavyweights are increasing spending on data centres, where Broadcom supplies many of the networking chips.
For the fiscal first quarter ended February 4, Broadcom’s AI revenue quadrupled from a year earlier to US$2.3 billion during the quarter, more than offsetting the current cyclical slowdown in enterprise and telcos, Tan added.
Revenue from its semiconductor solutions segment ticked up 4 per cent to US$7.39 billion for the first quarter, just shy of the Visible Alpha estimates of US$7.45 billion.
While widely known as a chip maker, Broadcom’s portfolio has broadened to include various tech firms, such as VMware and software company CA Technologies.
Infrastructure software revenue grew 153 per cent to US$4.57 billion, which was ahead of Visible Alpha estimates of US$4.49 billion.
The company reported quarterly net revenue of US$11.96 billion, above analysts’ average estimate of US$11.72 billion, according to LSEG data.
Broadcom reported adjusted first-quarter net income of US$5.25 billion, compared with analysts’ estimates of US$5.01 billion.
