After Nvidia Corp’s stratospheric rise, investors have searched for other tech companies poised to benefit from the artificial intelligence (AI) windfall. One such name is Broadcom, a giant chip maker best known for its networking products and custom chips that tackle particular computing tasks.
With a market cap of $600 billion, Broadcom competes with household names like Intel and Nvidia in the semiconductor space. However, many people don’t consider Broadcom a big player in the AI boom. The company plays a vital role in the back-end training systems used to train generative AI tools, such as OpenAI’s ChatGPT or DALL-E 3, and is poised to drive more revenue this year than Nvidia did in 2023.
On Thursday, Broadcom said it expects to earn $10 billion in revenue from AI-related chips this year, up from its forecast of $3 billion. The Palo Alto, California-based chipmaker’s AI sales will be boosted by the strong demand for its networking components and custom chips, which are essential in the giant data centers running these AI platforms.
During the fiscal first quarter, Broadcom’s AI-related revenue quadrupled from a year earlier to $2.3 billion. That helped to offset the cyclical slowdown in its larger enterprise and telco data center business.
However, the company’s full-year forecast failed to impress investors. The tech company forecasts revenue to fall slightly below the consensus estimate, sending its stock down more than 6% in extended trading after the market closes. The disappointing forecast comes when the market looks for signs that the broader tech rally may be becoming a bubble.
The tech sector’s lofty valuations have made it difficult for even the most prominent companies to turn a profit. For example, the S&P 500 Semiconductors and Semiconductor Equipment industry group trades at 28.5 times forward earnings estimates, a premium of about 17 percent to its 10-year average.
Broadcom’s reaffirmation of its AI sales outlook is likely enough to keep the stock from sinking further in the near term. However, investors will want more evidence of sustainable growth before being convinced that Broadcom is a long-term buy.
For now, investors will also closely watch semiconductor rival Marvell Technology’s (MRVL.O) quarterly results, which are due on Friday. The smaller rival is expected to post better-than-expected earnings, but the stock has already risen nearly 40% this year as investors are betting on more robust sales in the coming months. The company’s quarterly results will be significant for investors to watch as it will indicate whether the industry can overcome a year-long slowdown in memory chip prices.