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

Arista Networks

06/09/2024 14:47

(Rewrites throughout)
    By Akash Sriram and Arsheeya  Bajwa
       Sept 6 (Reuters) - Broadcom's shares  AVGO.O  slid more
than 7% in early trading on Friday, after the chipmaker's tepid
revenue forecast spooked investors betting on robust demand for
AI chips to drive strong growth.
    Chipmakers are bearing the brunt of Wall Street's lofty
expectations after a months-long rally in the shares of
semiconductor firms, as investors bet heavily on the hardware
that supports generative AI technology. 
    Broadcom posted big declines in revenues from its broadband
and non-AI networking divisions on Thursday, while a hike in its
forecast for AI chip sales failed to impress growth-hungry
investors who have driven a more than 35% increase in its shares
so far this year. 
    The drop in Broadcom's shares stems from "the lack of upside
in estimates... and outlook in AI revenue... along with
lackluster semiconductor segment revenue," said CFRA Research
analyst Angelo Zino. 
    While the company increased its sales forecast for AI chips
by $1 billion for the fiscal year ending October to $12 billion,
the boost was in line with widespread expectations, Zino said.
    Broadcom is set to lose more than $54 billion in market
value, if losses hold. 
    
  
  
    
    
    Artificial intelligence-linked chips are still a bright spot
for Broadcom, as Big Tech invests in the datacenter
infrastructure necessary to move around the hoards of data used
by AI models.
    However, Broadcom's custom AI chip business could see lumpy
growth due to its dependence on a limited number of customers
spending large amounts of capital. 
    Broadcom does not name its three custom AI chip clients, but
is reported to be behind Alphabet's  GOOGL.O  TPU chips employed
in the tech giant's datacenters. 
    Morgan Stanley analysts said Broadcom's AI revenue could be
uneven, though it noted still-strong growth this year. The
company's AI chip revenue is expected to rise 10% sequentially
to over $3.5 billion in the current quarter.
    The company's shares were valued at around 26 times forward
earnings expectations compared to about 30 for AI chip giant
Nvidia  NVDA.O . 
    
    
    
    
    Other chip stocks such as Nvidia, Advanced Micro Devices
 AMD.O  and Micron Tech  MU.O  were relatively flat. 
    Revenue from Broadcom's semiconductor segment, which
supplies products for data centers and networking, grew 5%
year-on-year in the quarter ending July, but just 1% from the
previous quarter.
    The drop in Broadcom's stock adds to cooling market
enthusiasm for artificial intelligence, even as Big Tech 
continues to invest in AI development. 
    Nvidia shares - a barometer for the AI rally - lost more
than 7% last week while Broadcom dropped about 2% as Nvidia's
lackluster forecast sparked a selloff. 
    
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Rising analyst estimates pull-down Broadcom's PE ratio    https://reut.rs/4dOH5Sz
The AI rally has driven up chipmakers' shares    https://reut.rs/4dUx2ve
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Akash Sriram and Arsheeya Bajwa in Bengaluru;
Editing by Krishna Chandra Eluri)
 ((Akash.Sriram@thomsonreuters.com; On X as @HoodieOnVeshti;
+91-74116-87774;))