Broadcom shares fell in early Friday trading after the company posted mixed quarterly earnings and a muted near-term revenue forecast, raising concerns about a potential slowdown in AI investments in the final months of the year.
Broadcom, which has seen a significant surge in demand for its specialized networking chips, added over $200 billion in value this year. These chips are crucial for developing AI systems, supporting large data models that require interconnected networks. The company also produces ASIC chips, which enhance the speed and reliability of data processing in data centers.
Despite reporting slightly better-than-expected revenue for the third quarter of $13.1 billion—boosted by demand for its ASIC and AI-focused chips—Broadcom failed to impress with its short-term outlook. AI revenues remained flat compared to the previous quarter at $3.2 billion, though they are expected to grow by 10% in the current quarter.
Broadcom anticipates current-quarter sales around $14 billion, slightly below forecasts, with a full-year total of about $51.5 billion. Revenues from VMware, acquired for $61 billion in 2022, are expected to reach a quarterly run rate of $4 billion.
While the company’s report was solid overall, its AI business lacked the strong upward momentum the market had hoped for. Analysts from Benchmark, Morgan Stanley, Cantor Fitzgerald, Goldman Sachs, and JPMorgan adjusted their price targets for Broadcom shares but maintained a positive long-term outlook due to the company’s strong competitive position and anticipated growth in the AI sector.
Broadcom CEO Hock Tan noted that AI is driving the need to upgrade the entire technology infrastructure, indicating a potential future growth cycle for the company. However, Broadcom shares were down 7.9% in pre-market trading, reducing the stock’s six-month gain to around 4.3%.
