Broadcom’s CEO, Hock Tan, alleviated investor concerns on Thursday with a robust second-quarter forecast, underpinned by surging demand for artificial intelligence (AI) chips.
The promising outlook, released after the market was rattled by a tempered forecast from Marvell Technology, sent Broadcom shares up 14% in extended trading following the results.
The chipmaker projects revenue of approximately $14.90 billion, surpassing the $14.76 billion anticipated by analysts, according to LSEG data.
Broadcom is experiencing significant demand for its custom AI chips from cloud computing firms seeking alternatives to Nvidia’s costly processors as they expand their AI infrastructure. Tan anticipates $4.4 billion in second-quarter revenue from its AI semiconductors, driven by hyperscale customers’ investments in custom AI chips for data centers.
Analysts expect Broadcom to further benefit as major tech companies transition away from off-the-shelf chips to in-house processors to meet the increasingly complex and personalized computing demands of AI tasks.
Adding to the positive outlook, Broadcom has four additional hyperscale customers actively collaborating to develop their own custom chips, apart from the existing three that utilize its processors. These four entities are not factored into the company’s $60 billion to $90 billion revenue opportunity forecast for 2027.
Reuters reported last month that OpenAI is working with Broadcom to finalize its initial custom chip design, with the goal of reducing its reliance on Nvidia. “The company is enabling hyperscalers and others who want to build custom AI accelerators to control their designs and costs,” stated Anshel Sag, an analyst at Moor Insights & Strategy.
Broadcom is among several companies assessing Intel’s most advanced manufacturing process, known as 18A. Test wafers have been run through the Intel factories to evaluate portions of chips, not complete designs.
“Broadcom is much better positioned compared to its peers as its exposure in AI market is relatively more diversified with multiple AI ASIC customers,” noted Kinngai Chan, an analyst at Summit Insights. Application-Specific Integrated Circuits (ASICs) are chips designed for specific tasks. Designing and manufacturing ASICs allows companies to conserve energy and boost performance.
In its first quarter, Broadcom reported revenue of $14.92 billion, exceeding the $14.61 billion estimate. AI revenue experienced a surge of over 77% to $4.1 billion, driven by increased adoption of its custom-made accelerators. Revenue in its infrastructure software segment also grew significantly, jumping over 47% to $6.70 billion, surpassing the analyst expectation of $6.49 billion.
