Broadcom sees $10 billion in AI chip sales in 2024, but shares dip

Illustration shows Broadcom logo

By Arsheeya Bajwa and Max A. Cherney

(Reuters) -Broadcom said on Thursday it expects $10 billion in revenue from chips related to artificial intelligence 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% 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 chips.

During an earnings call with analysts, Broadcom Chief Executive Hock Tan said that about $7 billion of the firm's AI chip revenue in 2024 would come from helping just two major clients design custom AI chips. 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% 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 $50 billion, likely disappointing investors despite representing growth of 40%.

A 26% rally in Broadcom's stock in 2024, fueled largely by AI optimism, has come with high growth expectations for the Palo Alto, California-based company. The stock dipped more than 1% 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.

Ahead of their results, Broadcom and Marvell each rallied over 4%, both hitting record highs having surged in recent months.

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 centers, where Broadcom supplies many of the networking chips.

For the fiscal first quarter ended Feb. 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.

Revenue from its semiconductor solutions segment ticked up 4% to $7.39 billion for the first quarter, just shy of the Visible Alpha estimates of $7.45 billion.

SOFTWARE SEGMENT GROWTH

While widely known as a chipmaker, Broadcom's portfolio has broadened to include various tech firms, such as VMware and software company CA technologies.

Infrastructure software revenue grew 153% to $4.57 billion, which was ahead of Visible Alpha estimates of $4.49 billion.

The company reported quarterly net revenue of $11.96 billion, above analysts' average estimate of $11.72 billion, according to LSEG data.

Broadcom reported adjusted first-quarter net income of $5.25 billion, compared with analysts' estimates of $5.01 billion. Adjusted for stock compensation, among other things, earnings were $10.99 a share, compared with estimates of $10.30 a share.

(Reporting by Arsheeya Bajwa in Bengaluru, and by Max A. Cherney and Stephen Nellis in San Francisco; Editing by Krishna Chandra Eluri and Diane Craft)