Chipmakers are bearing the brunt of elevated Wall Street expectations after a months-long rally in stocks. semiconductor companies as investors place heavy bets on the hardware that underpins generative AI technology.
Broadcom on Thursday posted big declines in revenue from its non-AI-related broadband and networking divisions, while a hike in its forecast for AI chip sales failed to impress growth-hungry investors who have fueled a more than 35% surge in its shares so far this year.
Broadcom’s stock decline was due to “a lack of improvement in estimates… and outlook on AI revenue… coupled with lackluster semiconductor segment revenue,” said CFRA Research analyst Angelo Zino.
While the company raised its AI chip sales forecast by $1 billion for the fiscal year ending in October to $12 billion, the increase was in line with widespread expectations, Zino said.
Broadcom is estimated to lose more than $54 billion in market value if the losses continue.
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AI-related chips remain a bright spot for Broadcom as big tech companies invest in the data center infrastructure needed to move the vast amounts of data used by AI models. However, Broadcom’s custom AI chip business could see uneven growth due to its reliance on a limited number of capital-intensive customers.
Broadcom doesn’t name its three custom AI chip customers, but it is reportedly behind Alphabet’s TPU chips used in the tech giant’s data centers.
Morgan Stanley analysts said Broadcom’s AI revenue could be uneven, though they noted continued strong growth this year. The company’s AI chip revenue is expected to rise 10% sequentially to more than $3.5 billion in the current quarter.
The company’s shares were valued at about 26 times forward earnings expectations, compared with about 30 for artificial intelligence chip giant Nvidia.
Other chip stocks such as Nvidia, Advanced Micro Devices and Micron Tech were relatively flat.
Revenue from Broadcom’s semiconductor segment, which supplies products for data centers and networking, grew 5% year-over-year in the quarter ended July, but just 1% from the prior quarter.
Broadcom’s share price decline is helping to dampen market enthusiasm for artificial intelligence, even as big tech companies continue to invest in developing it.
Nvidia shares, a barometer of the AI rally, lost more than 7% last week, while Broadcom fell about 2% as Nvidia’s lackluster outlook sparked a sell-off.
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