Broadcom slides after AI chip forecast underwhelms investors

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInvestorBroadcom slides after AI chip forecast underwhelms investorsThough artificial intelligence-fuelled revenue is soaring, the company is seeing pressure on its gross margins, one analyst saidAuthor of the article:Signage is displayed outside of Broadcom Ltd. headquarters in Irvine, Calif. on Nov. 6, 2017. Photo by Patrick T. Fallon/BloombergBroadcom Inc. shares declined after a two-year forecast for artificial intelligence chip sales failed to impress investors, a sign it is still in the early stages of challenging Nvidia Corp.’s dominance.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThough AI-fuelled revenue is soaring, the company is seeing pressure on its gross margins, Bank of America analyst Vivek Arya said in a note. He also expressed concern about Broadcom’s increasing reliance on Anthropic PBC and OpenAI as customers, since they have other chip options available, including Nvidia and Advanced Micro Devices Inc.Broadcom is contending with “a more competitive neighbourhood,” he said.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againThe stock slid as much as 6.7 per cent to US$342.81 in New York on Thursday, marking its biggest intraday decline in more than two weeks.Investors had initially reacted positively to the company’s AI chip forecast, which showed dramatic growth. Sales from that market will double to about US$115 billion in fiscal 2027 and soar to US$230 billion the following year, chief executive Hock Tan said during a conference call Wednesday. The company also is on track to top earnings of US$30 a share in fiscal 2028, outpacing Wall Street estimates.Broadcom’s custom AI semiconductor business has benefited from companies like Alphabet Inc.’s Google, OpenAI and Meta Platforms Inc. looking for ways to supplement their Nvidia-made AI chips with additional supply and variation.Chatbot makers Anthropic and OpenAI, which are racing to expand their AI infrastructure, have emerged as especially important clients for Broadcom. Anthropic is expected to become the biggest customer for Broadcom’s custom chips in 2027, displacing Google. Tan sees OpenAI becoming the second-biggest client for that business.“We have six customers — four of them are just simply going to be huge,” Tan said. Demand for chips is higher than what Broadcom can ship, particularly due to supply shortages, he said.The rapid expansion of data centres also has helped lift sales of Broadcom’s networking products. Capital budgets for the top five hyperscalers — a group that includes the biggest operators of data centres — have climbed about 40 per cent to more than US$700 billion, “strengthening demand visibility for custom silicon and networking,” Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada said in a note.Broadcom’s forecast for the fourth quarter was less impressive when measured against Wall Street estimates. Revenue will be US$34.8 billion in that period, which runs through October, the company said. Though analysts predicted US$35.1 billion on average, some estimates topped US$36 billion, according to data compiled by Bloomberg.Already, investors have been skeptical of Broadcom this year. The stock was up 6.1 per cent through Wednesday’s close, a performance that trailed the rallies enjoyed by many chip peers in 2026.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.AI chip revenue will generate US$21.7 billion in the fourth quarter, Broadcom said. That narrowly topped the average estimate, with some projections well exceeding US$22 billion.In the fiscal third quarter, which ended Aug. 2, sales rose 86 per cent to US$29.6 billion. Analysts had projected about US$29.5 billion on average. Earnings climbed to US$3.32 a share, excluding some items. That compared with an estimate of US$3.23.AI semiconductor revenue was US$16.7 billion in the period, compared with an average estimate of US$15.9 billion. That category includes custom-built accelerators — the chips used to develop and run AI models — as well as networking semiconductors.During the call, Tan said the company is accelerating work with Google, Anthropic and OpenAI. Broadcom will be shipping “multi tens of billions of dollars” worth of custom processors annually over the next several years to Google, Tan said. Measured by energy use — a benchmark of data centre capacity — Broadcom will send five gigawatts’ worth of the chips to Anthropic next year and a further 10 gigawatts the following year.Broadcom also has “line of sight” to provide OpenAI with more than five gigawatts of custom chips in 2028, Tan said. Between now and the end of 2027, Broadcom will deliver three generations of chips to Meta, its fourth major customer.The Palo Alto, Calif.-based company has also set up substrate fabrication — a key step in chip production — at a plant in Singapore along with a partner, Tan said. Broadcom is investing more broadly in its factories, said Charlie Kawwas, the company’s semiconductor unit president, as it tries to ease some supply shortages.Tan has positioned his company as a key alternative to the workhorse Nvidia chips that dominate the AI space. He poked at his rival on the call, saying that a new version of the chip it developed with Google is as good if not better than Nvidia’s new Vera Rubin line when running AI models.Broadcom has been riding high on custom AI chip demand, both by signing deals and leading a charge to find a way to help companies like Anthropic pay for pricey semiconductor purchases. Tan has set up financing vehicles with Apollo Global Management Inc. and Blackstone Inc. to help Anthropic afford the Google chips that Broadcom helped develop.The financing partnership, which is meant to back more than 20 gigawatts of computing power, will require hundreds of billions of dollars. That level of capacity would roughly equal the output of 20 nuclear plants.But there also have been signs of mounting competition. Last month, Marvell Technology Inc. announced a deal to help make custom semiconductors for Google. Broadcom and Google have long worked together to develop that company’s tensor processing units, or TPUs, which are chips used in AI data centres.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.