Broadcom shares slump as revenue target disappoints investors hoping for big AI boost

Arista Networks

06/09/2024 12:38

Sept 6 (Reuters) - Broadcom's shares  AVGO.O  slid about
9% in premarket trading on Friday, after the chipmaker's revenue
forecast spooked investors betting on robust demand for AI chips
to drive strong growth.
    The chip major posted big declines in revenues from its
broadband and non-AI networking divisions on Thursday,
offsetting a hike in its forecast for AI chip sales.  
    Artificial intelligence-linked chips have been a bright spot
for Broadcom, as data centers and Big Tech firms invest in
infrastructure that can move around the hoards of data used by
AI models.
    However, analysts said Broadcom's AI chip business could see
uneven growth due to a limited number of customers spending
large amounts of capital. Morgan Stanley analysts said AI
revenue could be uneven, though it noted still-strong growth
this year.
    The company's shares were valued at 25.6 times forward
earnings expectations compared to 29.6 for AI chip giant Nvidia
 NVDA.O  and 36.07 for AI networking equipment maker Arista
Networks  ANET.N .
    Broadcom's market capitalization, should the losses persist,
could drop by about $63 billion from $711 billion as of
Thursday's close.
    Other chip stocks such as Nvidia, Advanced Micro Devices
 AMD.O  and storage chip maker Micron Tech  MU.O  were down
between 1% and 2% before the bell.
    Revenue from Broadcom's semiconductor solutions business, 
which supplies products for data centers, networking and
broadband, grew 5% in the quarter ending July from the same time
a year ago, but just 1% from the previous quarter.
    
    BOOST FROM AI BOOM
    Investor enthusiasm for artificial intelligence has cooled
even as Big Tech and chip companies continue to bet on the
promise of AI and invest in infrastructure to support its
development.
    Broadcom has indicated it continues to benefit from the
billions of dollars in AI spending, as it increased its sales
forecast for AI chips by $1 billion for the fiscal year ending
October to $12 billion.
    "While we think the AI business deserves a premium, the
remainder of Broadcom's business remains the same slow growth
high cash flow business that's always been Broadcom's business
model," Wolfe Research analyst Chris Caso said.
    Big Tech firms such as Alphabet's  GOOGL.O  Google and
Microsoft  MSFT.O  have vowed to continue spending on AI as they
try to generate revenue off their AI tools through subscriptions
and higher-priced tiers of their software.
    

 (Reporting by Akash Sriram in Bengaluru; Editing by Krishna
Chandra Eluri)
 ((Akash.Sriram@thomsonreuters.com; On X as @HoodieOnVeshti;
+91-74116-87774;))