Broadcom Inc. (AVGO.O) forecasted lower-than-expected revenue for its fourth quarter on Thursday, despite a surge in demand for its artificial intelligence (AI) chips. The chipmaker’s lukewarm outlook caused its shares to drop nearly 5% in extended trading, as weaker performance in its broadband segment weighed on results.
The California-based company projected quarterly revenue of approximately $14 billion, just shy of the $14.04 billion expected by analysts polled by LSEG. While Broadcom’s AI chips have seen a sharp increase in orders, this growth wasn’t enough to offset declining sales in other areas.
“We believe it’s unreasonable for investors to expect Broadcom to post Nvidia-type results and outlook,” noted Kinngai Chan, a senior research analyst at Summit Insights, referring to Nvidia’s dominant position in the AI-chip market.
Investor expectations for AI-related companies have been exceedingly high, as many are betting on AI technology to fuel significant growth. However, last week, even AI leader Nvidia’s quarterly forecast failed to meet Wall Street’s elevated expectations, marking a similar trend across the sector.
In a post-earnings conference call, Broadcom executives reported a 49% decline in broadband revenue and a 41% drop in non-AI networking revenue. These declines indicate that strong growth in AI-related segments was not enough to offset weaknesses in other parts of the business.
The company reported a net loss of $1.88 billion on a GAAP basis, compared to a profit of $3.30 billion a year ago. This loss included a one-time, non-cash tax provision of $4.5 billion, resulting from an intra-group transfer of intellectual property rights to the U.S. as part of a supply chain realignment.
Despite these challenges, Broadcom raised its forecast for annual AI revenue to $12 billion, up from its previous estimate of $11 billion. The company has benefited from increased demand for its custom chips, which play a critical role in moving large amounts of data for AI and networking applications.
The company’s third-quarter revenue and adjusted profit beat analyst expectations, but it wasn’t enough to counteract the market’s concerns over sluggish broadband spending.
“The rise in AI revenue forecast clearly shows Broadcom is benefiting from industry-wide AI adoption, albeit less robustly compared to Nvidia,” added Chan.
Broadcom’s custom chips, widely used by companies looking to enhance their data operations, continue to attract growing orders as AI technology becomes more integrated into enterprise infrastructure.
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