(Bloomberg) — Broadcom expects artificial intelligence revenue to double this year, suggesting it’s benefiting from the same frenzy that has boosted Nvidia, but the company’s We are still in the midst of a broader economic slowdown.
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Broadcom CEO Hock Tan said on Thursday’s quarterly earnings call that semiconductor sales from companies building AI capabilities could rise to $1 billion per quarter. He said AI-related chip sales could soon exceed 25% of the company’s overall sales.
However, the company said in a previous statement that it expects total revenue to grow less than 5% this quarter to about $8.85 billion. That would be above analyst estimates of $8.76 billion, but it was Broadcom’s slowest growth in years. The company is grappling with weak technology demand across the industry, with growth slowing sharply after the surge caused by the pandemic.
Touting Broadcom’s AI advances, Tang uses a tactic now common for tech companies. But like others, he has yet to reach the dramatic growth of NVIDIA’s Jensen Huang. Broadcom may be growing in an overall market slump, but Nvidia predicted a more than 60% increase in revenue.
Tang’s comments about AI briefly boosted stocks after the market on Thursday, but they fell again by about 2.3% later in the day.
Broadcom’s networking components help route traffic between computers in massive data centers and manufacture custom chips for the largest cloud computing providers. Those customers are vying for additional capacity to meet demand for AI services, a trend that pushed Nvidia’s valuation closer to his $1 trillion threshold this week.
Excitement over Broadcom’s growth prospects pushed its shares up 41% this year by Thursday’s close, making it one of the best-performing semiconductor stocks in 2023.
Broadcom’s report failed to impress investors, even though the numbers beat Wall Street’s expectations.
Broadcom earned $10.32 per share in the second quarter ended April 30, excluding certain items. Revenue increased 7.8% to $8.73 billion, the first time since 2020 that growth has fallen below 10%. Analysts had expected earnings of $10.15 a share and revenue of $8.72 billion.
Broadcom’s chip business had sales of $6.81 billion in the quarter, up 9% from a year earlier. Infrastructure software increased 3% to $1.93 billion.
Tan has warned analysts and investors that Broadcom’s growth during the pandemic boom will not last long. Shortages over the past few years have resulted in excess inventories in some regions, causing customers to put off new orders. The company still expects to have a full order book for the rest of the fiscal year ending in October.
Broadcom’s chips are found not only in data centers, but also in smartphones and home networks, leading broader technology spending. The company supplies Apple Inc. with semiconductors for iPhones that provide short-range connectivity. Chipmakers have previously warned that wireless sales would slow in the second quarter.
Broadcom, based in San Jose, Calif., has also expanded into the enterprise software space with acquisitions of security and mainframe capabilities. However, the proposed acquisition of cloud software maker VMware Inc. faces regulatory scrutiny and is taking longer than expected to complete. The company also reported quarterly results after the close of trading on Thursday, reporting lower-than-expected sales and profits.
Broadcom said it was on track to clear regulatory hurdles and still expected the VMware deal to close in fiscal 2023.
Tan is more pessimistic about the semiconductor industry as a whole than many of his colleagues. In the long term, he said, the market is unlikely to grow faster than the United States’ gross domestic product.
He said on Thursday that it’s hard to say whether AI will change that outlook because the adoption of AI systems is limited to some cloud computing companies. Computing systems are also difficult to build quickly because they require supplies.
He said it takes six months to deliver cutting-edge components.
“You don’t make it in less than six months,” he said. “The ability to accelerate growth will be further evaluated.”
(Updates shared response in fifth paragraph.)
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