Broadcom Expects $10 Billion in AI Chip Sales in 2024, But Shares Still Drop as Investors Aren't Impressed

By Trisha Andrada

Mar 08 2024, 08:32 AM EST

Broadcom's shares fell after its full-year forecast failed to impress investors despite its announcement that it expects $10 billion in revenue from artificial intelligence (AI) chips this year.

According to Reuters, the tech company's shares dropped 1.5% in premarket trading on Friday. Many investors are closely watching Broadcom because they think the chipmaker can cash in on the AI boom, similar to what they have seen with OpenAI's ChatGPT and Google's Gemini.

In addition to selling networking chips, Broadcom assists customers in developing custom AI chips, which is essential for handling the massive volumes of data required by AI computing.

Broadcom 2024 Outlook

During an earnings call with investors on Thursday, Broadcom CEO Hock Tan said that by 2024, only two major customers would account for about $7 billion of the company's income from AI chips.

According to Reuters, analysts believe that the clients, whom Tan did not identify, are Alphabet's Google and Facebook owner Meta. Tan noted that the custom chip business can achieve margins the same as its corporate gross margin.

In the first quarter of the fiscal year, that gross margin was around 75% after adjustments. Broadcom failed to update its yearly revenue forecast of $50 billion, disappointing investors despite representing a 40% increase.

Growth expectations for Broadcom are high after a 26% surge in the company's shares this year, primarily due to confidence in AI. In after-hours trading, the shares fell more than 1% after the company did not raise its forecast.

Bob O'Donnell of TECHnalysis Research told Reuters that for "companies whose chips are more tangentially related to the AI gold rush, there will inevitably be starts and stalls in growth rates that can't easily be mapped to the big AI trends."

Broadcom Benefactor of Generative AI Drive in Tech Sector

In light of the increased investment in data centers by tech giants like Microsoft, Broadcom has been hailed as a benefactor of the generative AI drive in the tech sector.

According to Tan, the AI revenue of Broadcom quadrupled from a year earlier to $2.3 billion during the fiscal first quarter that ended on February 4.

Its semiconductor solutions segment saw a 4% increase in its first-quarter revenue to $7.39 billion, slightly short of the $7.45 billion predicted by Visible Alpha.