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AI Chip Revenue Projections Send Broadcom Stock on Rollercoaster Ride

Broadcom projected a robust $10 billion in revenue from AI-related chips this year, yet its stock stumbled as the company’s full-year outlook didn’t excite investors. Marvell Technology, a smaller competitor, also disappointed with a revenue forecast below market expectations, leading to a more than 6% drop in its stock during extended trading.

Investors are closely monitoring both companies, anticipating their shares of the burgeoning AI technology market, including breakthroughs like OpenAI’s ChatGPT and Google’s Gemini.

Broadcom and Marvell specialize in networking chips crucial for handling the massive data requirements of AI computing, as well as assisting clients in designing custom AI chips. During an earnings call, Broadcom CEO Hock Tan revealed that a significant portion of the firm’s projected $7 billion in AI chip revenue for 2024 would stem from aiding two undisclosed major clients in custom chip design, widely believed to be Google and Meta Platforms.

Tan emphasized that the custom chip business could yield margins akin to the company’s corporate gross margin, standing at approximately 75% on an adjusted basis for the fiscal first quarter. Recent reports indicate Nvidia is eyeing competition with Broadcom in the custom AI chip market.

Despite Broadcom’s optimistic revenue forecast, the company didn’t update its annual revenue projection of $50 billion, disappointing some investors. The stock, which had surged by 26% in 2024 on AI enthusiasm, dipped over 1% in after-hours trading following the stagnant forecast.

Analysts note that companies less directly tied to the AI boom may experience fluctuations in growth rates that don’t precisely align with broader AI trends. Both Broadcom and Marvell saw significant pre-results rallies, each hitting record highs in recent months.

Broadcom stands to benefit from the surge in AI-driven initiatives across the tech sector, particularly as heavyweights like Microsoft increase data center spending, where Broadcom supplies critical networking chips.

For the fiscal first quarter ending Feb. 4, Broadcom reported a quadrupling of AI revenue from a year earlier to $2.3 billion, effectively offsetting the current slowdown in enterprise and telecommunications sectors. Semiconductor solutions revenue for the first quarter reached $7.39 billion, slightly below Visible Alpha estimates of $7.45 billion.

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