New Delhi

Broadcom on Thursday projected $10 billion in revenue from artificial intelligence (AI) chips in 2024.

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Despite this optimistic outlook, the tech giant's stock faced a dip as investors seemed unimpressed with the full-year forecast.

CEO Hock Tan shared insights during an earnings call, emphasising that approximately $7 billion of the anticipated AI chip revenue would be attributed to assisting two major clients in designing custom AI chips.

While Tan didn't explicitly name the clients, industry analysts widely speculate them to be Google's Alphabet and Meta Platforms, the parent company of Facebook.

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AI chip business prospects and market reaction

Broadcom, alongside smaller rival Marvell Technology, is watched by investors seeking a share in the burgeoning AI technologies market, including innovations like OpenAI's ChatGPT and Google's Gemini.

Both companies specialise in networking chips crucial for handling the vast data volumes associated with AI computing.

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Additionally, they assist clients in crafting custom AI chips tailored to their needs.

Despite the bullish AI chip revenue projection, Broadcom's stock faced a decline in after-hours trading due to a less-than-stellar full-year forecast, impacting investor sentiment.

Custom AI chips and margins

Broadcom's CEO, Hock Tan, shed light on the custom chip business, stating that it "can command margins similar to our corporate gross margin," which stood at approximately 75 per cent on an adjusted basis for the fiscal first quarter.

Notably, $7 billion of the expected $10 billion AI chip revenue is anticipated from this segment.

Although Tan did not explicitly mention Google and Meta Platforms, industry speculation points to them as the major clients for Broadcom's custom AI chip design services.

This segment's robust growth is seen as pivotal for Broadcom's overall revenue outlook.

Annual revenue forecast and investor sentiment

Despite the AI chip revenue forecast, Broadcom chose not to update its annual revenue projection of $50 billion.

This decision, coupled with the stock's 26 per cent rally in 2024 driven by AI optimism, resulted in a slight dip in after-hours trading.

Analysts expected a more bullish outlook, given the heightened growth expectations for Broadcom.

The company's role as a data centre supplier for tech heavyweights like Microsoft has fuelled its prominence in the AI domain.

Diversification and growth in software segment

Broadcom, traditionally recognized as a chipmaker, has broadened its portfolio to include collaborations with tech firms such as VMware and software company CA Technologies.

Notably, the infrastructure software revenue witnessed remarkable growth, surging by 153 per cent to $4.57 billion, surpassing estimates.

Despite challenges in other segments due to a cyclical slowdown, Broadcom's AI revenue for the first quarter quadrupled from the previous year to reach $2.3 billion, offsetting other downturns.

Earnings performance

For the fiscal first quarter ending February 4, Broadcom reported net revenue of $11.96 billion, surpassing analysts' average estimate.

Adjusted net income was reported at $5.25 billion, outperforming estimates.

(With inputs from Reuters)