Broadcom’s CEO predicts the chipmaker’s revenue from AI will double

(Bloomberg) — Broadcom Inc., one of the world’s largest chipmakers, forecast that artificial intelligence-related sales will double this year, which will help offset a general decline in technology spending.

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Chip sales from companies expanding their AI capabilities could soar to $1 billion a quarter, CEO Hock Tan said during a conference call Thursday following Broadcom’s quarterly earnings release. Sales of AI chips could soon account for more than 20% of the company’s total sales, he said.

The outlook suggests that Nvidia Corp. isn’t the only chipmaker benefiting from the AI ​​frenzy. Broadcom’s networking components help route traffic between computers in massive data centers, and the company makes custom chips for some of the largest cloud computing providers. These customers are vying to build more capacity to service demand for AI services — a trend that helped Nvidia hit the $1 trillion valuation threshold this week.

Tan’s comments helped Broadcom stock erase losses after falling more than 3%. They were down about 1.5% as of 5:37 p.m. New York time.

Shares had closed at $789.95 in New York, up 41% for the year. This makes them among the best-performing semiconductor stocks in 2023.

Broadcom is still grappling with an industry-wide slump in technology demand, and its overall revenue growth has slowed sharply from a pandemic-driven spike in recent years.

Revenue for the fiscal third quarter will be about $8.85 billion, up 4.6% year over year, the company said in an earlier statement Thursday. Though that beats analysts’ estimate of $8.76 billion, it would be Broadcom’s slowest growth in years.

Tan had warned analysts and investors that the boom times of the pandemic would not last. The bottlenecks of recent years have led to an oversupply of stock in some areas, prompting customers to postpone new orders.

In touting Broadcom’s AI achievements, Tan employs a tactic common among tech companies today. But like others, he has yet to match the dramatic increase seen by his colleague Jensen Huang at Nvidia. While Broadcom is growing in a flagging overall market, Nvidia forecast a revenue jump of more than 60%.

Broadcom’s chips are used in smartphones and home networks in addition to data centers, making them an indicator of a variety of technology spending. The company previously said it had full order books for the remainder of the fiscal year, which ends in October.

For the second quarter ended April 30, Broadcom’s earnings were $10.32 per share (excluding some items). Revenue rose 7.8% to $8.73 billion, marking the first time since 2020 that growth was below 10%. Analysts had forecast earnings of $10.15 per share and revenue of $8.72 billion.

Broadcom’s chip business had revenue of $6.81 billion for the quarter, up 9% year over year. Infrastructure software was up 3% to $1.93 billion.

Broadcom supplies Apple Inc. with semiconductors for the iPhone that enable short-distance connectivity. The chipmaker previously warned that handset sales would slow in the second quarter.

Based in San Jose, California, Broadcom has also expanded into enterprise software through the acquisition of security and mainframe capabilities. However, a planned purchase of cloud software manufacturer VMware Inc. is facing official scrutiny and has taken longer than expected. This company also released quarterly results after the market close on Thursday and reported that sales and earnings came in below estimates.

Broadcom said it’s making good progress overcoming regulatory hurdles and still expects to close the VMware deal in fiscal 2023.

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