Shares in Broadcom (AVGO) stock fell on Thursday following a disappointing earnings report and guidance, sending other semiconductor stocks lower too. With Broadcom stock down, shares in AMD, TSMC and more also fell to end the week.
Broadcom posted a profit of $8.518 billion, or $1.74 a share, in the fiscal fourth quarter that ended in early November, compared with $4.3 billion and 90 cents a year earlier. Sales were $18.02 billion for the quarter, a record, and $63.9 billion for the full fiscal year, better than analyst estimates of $17.5 billion and $63.3 billion, respectively. While the earnings were better year-over-year and quarter-over-quarter, executives later went into more detail on a conference call with analysts. Broadcom Chief Executive Hock Tan noted that the company’s fast-growing AI revenue has lower gross margins than its non-AI revenue. Its forecast for non-AI revenue in the first quarter was flat.
At one point during the call, Tan downplayed the rise of custom AI accelerator chips, which Broadcom calls XPUs. He said many large AI software developers, especially makers of large language models, want to make their own custom chips, but implied that general-purpose graphics processing units, or GPUs, like the ones made by Nvidia, are becoming so powerful so quickly with each new generation that demand for them is unlikely to subside.
Many top industry executives expect the entire AI chips market to grow to around $1 trillion a year in the next few years. Broadcom, which designs the custom chips made by Google, known as tensor processing units, or TPUs, is positioned to control 70% to 80% of that custom chip market, said Daniel Newman, Futurum’s CEO. “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,” Newman said. “This market is only going to get bigger, and all these AI companies are only going to need more chips.”
At press time, Broadcom AVGO stock is trading near the top of its 52-week range and above its 200-day simple moving average. However, it did fall by over 11% to close out this past trading week.