Broadcom forecasts quarterly sales below estimates amid rising custom AI chip competition

Broadcom forecasted fourth-quarter revenue of approximately US$34.8 billion, falling short of analysts' average estimate of US$35.03 billion. This forecast indicates that the rising competition in the custom AI chip market could hinder the company's performance. The stock of Broadcom, based in Palo Alto, California, declined by over 3% in extended trading, despite a year-to-date gain of about 6%, which is significantly lower than its rivals and the broader semiconductor index.

While Broadcom is a major player in the chip industry, it trails behind Nvidia, the AI industry leader, whose GPUs are the prevailing standard for AI workloads. The company anticipates fourth-quarter revenue of about US$34.8 billion, matching the average analyst estimate. Finance chief Amie Thuener stated that Broadcom expects to sustain its adjusted operating margin at 66% for the quarter, unchanged from the previous year.

Furthermore, Broadcom projected AI chip sales of US$21.7 billion in the fourth quarter, slightly exceeding estimates of US$21.33 billion. The company's customers are also forming partnerships with competitors; for instance, Marvell recently entered a custom chip agreement with Google, potentially making Google one of its largest investors with a potential stake of up to US$12.2 billion.

In April, Broadcom signed a long-term contract to supply Google with future AI chip generations through 2031. Broadcom's capacity to accommodate the substantial AI demand has been challenged by supply chain disruptions. To mitigate its reliance on a single manufacturer, Broadcom signed a multi-year memorandum of understanding with Samsung Electronics in July, worth over US$200 billion.

AI chip sales surged more than threefold to US$16.7 billion in the third quarter, propelling Broadcom's total revenue to US$29.59 billion, surpassing estimates of US$29.36 billion. Adjusted profit reached US$3.32 per share, contrasting with estimates of US$3.24.