Broadcom AI Chip Forecast Misses Expectations, Stock Plunges

Broadcom's latest earnings report and financial outlook failed to satisfy investors, leading to a sharp decline of over 13% in its stock price during after-hours trading. While the company maintained its 2027 sales forecast, its AI chip revenue prediction for the current quarter did not meet Wall Street's expectations, suggesting a slower pace in the booming AI industry than anticipated.

Despite reporting second-quarter revenue of $22.19 billion, slightly below the $22.27 billion expected, Broadcom's adjusted earnings per share of $2.44 surpassed the predicted $2.39. AI chip-related revenue for the quarter was $10.8 billion, marginally exceeding the market's expectation of $10.7 billion. However, the forecast for AI semiconductor revenue in the third quarter was set at $16 billion, falling short of the analysts' average estimate of $17.2 billion.

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Broadcom is committed to deploying 1.3 GW of production capacity by 2027, with the entire agreement aiming for 10 GW of production capacity by 2029.

CEO Hock Tan stated that Broadcom expects to sell $56 billion worth of AI chips in the fiscal year ending October, a figure lower than the average forecast of $57.6 billion. The company is competing with industry leader Nvidia, and while it has made progress in serving AI clients, it couldn't meet the high expectations set by investors. In the five trading days leading up to the earnings report, Broadcom's market value had surged by approximately $270 billion due to optimistic AI projections.

Tan has tied the company's future to AI, betting on the rapid expansion of data centers and other infrastructure. Broadcom has secured long-term agreements with companies like Google, Anthropic, and Meta, though the exact revenue contribution per quarter remains unclear. The company has also begun supplying chips to OpenAI, with full production expected later this year. Under an agreement with OpenAI, Broadcom is committed to deploying 1.3 GW of production capacity by 2027, aiming for 10 GW by 2029. Additionally, Broadcom will provide 3 GW of computing power to Meta by the end of 2028, with the first 1 GW expected in the latter half of next year, involving AI accelerators and networking chips.

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Broadcom will also provide 3 GW of computing power to Meta by the end of 2028.