Shares in US chip designer Broadcom Inc. dropped in after-market hours on Thursday following its fourth-quarter outlook missing Wall Street forecasts due to a loss of momentum in the firm’s broadband business.
The company’s stock declined almost 5% in extended trading, overlooking optimism from a significant order increase for its artificial intelligence (AI) chips from companies planning to simplify their data operations. The shares closed at $152.82 in New York, logging a 37% surge for the year.
The California-based semiconductor giant anticipates revenue of about $14 billion for the fourth quarter of the fiscal year 2024, rising 51% from the same period in the previous year. However, the estimate falls short of the $14.1 billion projected.
The lower-than-expected forecast came as the chip supplier for iPhone maker Apple Inc. and other tech giants saw its non-AI operations, primarily its broadband division, expand at a sluggish rate.
Its broadband revenue fell 49% in the third quarter while non-AI networking slipped 41%, signaling an offset in its AI business’s solid activity from softer demand in other segments.
Broadcom Expects to Keep Benefiting from AI
Investors continue to have high expectations for companies significantly involved with AI, as they view AI chips and technology as major growth drivers.
However, senior research analyst Kinngai Chan said it is not practical for investors to expect Broadcom to present earnings and outlooks at the same level as those of AI market darling Nvidia Corp.
The AI race frontrunner has also recently posted a third-quarter gross margin estimate of 75%, which was below market forecasts of 75.5%. Its projected revenue of $32.5 billion for the quarter was above the $31.77 billion expected.
For fiscal 2024, Broadcom said solid demand for its custom chips and AI networking equipment could result in revenue of $12 billion for its AI division, climbing from previous expectations for $11 billion.
The upward revision signals that the chip designer is also gaining from the wide adoption of AI, although less strongly than Nvidia, according to Chan. The company also raised its full-year revenue outlook to $51.5 billion from its earlier estimate of $51 billion.
Additionally, the firm appeared to be benefiting from its enterprise software efforts, as infrastructure software revenue jumped 200% to $5.8 billion, mainly due to its continued integration of VMware.
The move has not only broadened its product offerings but has also considerably boosted its presence in the software market.
