Introduction
Broadcom's shares experienced a decline of over 3% in early trading on Friday, following the company's third-quarter revenue forecast, which fell short of investor expectations that had been buoyed by the artificial intelligence boom.Context
Headquartered in Palo Alto, California, Broadcom supplies semiconductors to major tech giants like Apple and Samsung. The company's advanced networking gear is pivotal for enabling significant data transfer across AI data centers, highlighting the importance of its chips in the evolution of generative AI technology.Developments
Broadcom anticipates third-quarter revenue of approximately $15.80 billion, slightly exceeding analysts' average estimate of $15.71 billion, based on data compiled by LSEG. Analyst Stacy Rasgon from Bernstein noted that "high expectations drove a bit of downside" in the stock's performance.Additionally, Broadcom is actively involved in creating customized AI processors for large cloud providers, positioning itself as a competitor to Nvidia's costly, off-the-shelf offerings. The company has also been impacted by shifting trade policies and export restrictions from the U.S., which aim to limit China's access to advanced technologies.
Morgan Stanley highlighted that while Broadcom is onboarding two additional customers, their current scale remains small, resulting in a measured growth rate for its processor business this year. In contrast, rival Marvell Technology recently provided an optimistic forecast, surpassing Wall Street estimates by foreseeing robust demand for its custom chips that support AI workloads in data centers.
Broadcom's valuation surpassed the $200 billion mark for the first time in December after it projected significant growth in demand for AI-capable chips. To date, its shares have appreciated by approximately 12% this year. Notably, Broadcom exhibits a 12-month forward price-to-earnings ratio of 35.36, significantly higher than Marvell's 20.63, as reported by LSEG.