- Broadcom reported strong fiscal Q4 earnings but faced a stock decline due to cautious future guidance.
- The company’s AI-related revenue has lower gross margins, and non-AI revenue is forecasted to remain flat in the next quarter.
- Broadcom sees limited impact from custom AI chips as general-purpose GPUs remain highly demanded.
- Broadcom holds a dominant position in custom AI chip design, with 70% to 80% market share in this segment.
- Other semiconductor stocks, including AMD and TSMC, also dropped following Broadcom‘s earnings report.
Shares in Broadcom (AVGO) declined sharply on Thursday after the company released its fourth-quarter fiscal earnings and provided cautious guidance. The slump in Broadcom shares also affected other semiconductor companies such as AMD and TSMC, which ended the week lower.
For the quarter ending in early November, Broadcom recorded a profit of $8.5 billion, or $1.74 per share. This compares to $4.3 billion and 90 cents per share during the same period last year. Quarterly sales reached $18 billion, setting a company record and surpassing analyst estimates of $17.5 billion. Full fiscal year sales totaled nearly $64 billion, also above the expected $63.3 billion. Despite these gains, company executives offered a more nuanced outlook during a post-earnings analyst call.
Broadcom CEO Hock Tan highlighted that revenue from Artificial Intelligence (AI) products grows rapidly but delivers lower gross margins compared to non-AI sales. The company also forecasts that non-AI revenue for the upcoming quarter will remain flat. On the call, Tan addressed custom AI accelerator chips called XPUs, noting that many AI developers, especially those creating large language models, prefer building their own chips. However, he emphasized that the power of general-purpose graphics processing units (GPUs), such as those from NVIDIA, continues to increase rapidly with each generation, sustaining high demand.
Industry experts estimate the AI chip market could reach approximately $1 trillion annually in the coming years. Broadcom, which designs custom chips known as tensor processing units (TPUs) used by companies like Google, controls 70% to 80% of the custom AI chip market, according to Daniel Newman, CEO of Futurum. He stated, “People used to talk about how software was going to eat the world, but now semiconductors are eating the world, and Broadcom has really just mastered the class of custom silicon for AI.”
At the close of the week, Broadcom AVGO stock was trading near the top of its 52-week range and above its 200-day simple moving average but dropped more than 11% over the week.
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