Chipmaker Broadcom forecast Q4 revenue slightly below Wall Street expectations, hurt by sluggish spending in its broadband segment. Broadcom (AVGO) stock fell after the closing bell on Thursday, sliding following quarterly earnings result that swung to a loss due to increased merger-related expenses.
Despite a sharp rise in orders for its artificial intelligence chips, shares fell nearly 5% in extended trading. California-based Broadcom expects revenue of around $14 billion, while analysts polled by LSEG expected $14.04 billion.
Investors high expectations
“We believe it’s unreasonable for investors to expect Broadcom to post Nvidia-type results and outlook,” Kinngai Chan, senior research analyst at Summit Insights, said.
Investor expectations for artificial intelligence-linked companies remain very high as they bet on AI chips and technology to drive significant growth.
However, AI-chip leader Nvidia’s quarterly forecast fell short of sky-high investor expectations last week, failing to maintain its history of comfortably beating Wall Street targets.
Broadcom’s Q3 earnings report
On a post-earnings conference call, Broadcom executives reported that broadband revenue declined 49% in the reported quarter, while non-AI networking fell 41%, indicating a strong performance in the AI segments was offset by weak demand in other divisions.
Broadcom posted a loss of $1.88 billion on a GAAP basis, compared with a profit of $3.30 billion a year ago.
The net loss includes a one-time discrete non-cash tax provision of $4.5 billion, resulting from an intra-group transfer of certain intellectual property rights to the United States as part of a supply chain realignment.
The company raised its forecast for annual AI revenue to $12 billion, up from its earlier expectation of $11 billion, as it benefits from the demand for its custom chips and AI networking equipment.
Broadcom’s revenue
It also beat analyst expectations for Q3 revenue and adjusted profit.
The rise in its AI revenue forecast “clearly shows Broadcom is also benefiting from the industry AI adoption albeit less robustly compared to Nvidia,” Chan added.
Broadcom’s custom chips, which are used to move around large quantities of data, have seen increased orders from companies looking to streamline their data operations.
The company’s infrastructure software revenue tripled in the third quarter, primarily due to VMware’s contribution, indicating its push into enterprise software was paying off.
Broadcom’s forecast
The company projected fiscal Q4 revenue of $14 billion, which fell slightly short of the analyst consensus. CEO Hock Tan said the company expected full-year AI revenue to be $12 billion, “driven by ethernet networking and custom accelerators for AI data centers,”
It also raised its full-year revenue forecast to $51.5 billion from its prior expectation of $51 billion.
Broadcom’s stock update
In after-hours trading on the stock market today, AVGO stock dropped 4.8% to 145.55. During the regular session Thursday, AVGO stock sank 0.8% to close at 152.82. Broadcom’s stock has risen substantially this year, climbing some 40%.
