(Bloomberg) — Broadcom has predicted that sales related to artificial intelligence will double this year, a sign that it is cashing in on the same frenzy that has fueled Nvidia Corp. , but the chipmaker is still mired in a broader slowdown.
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Broadcom CEO Hock Tan said during a quarterly earnings call Thursday that semiconductor revenue from companies building their AI capabilities can grow to $1 billion each quarter. He said sales of chips related to artificial intelligence could account for more than 25% of the company’s total sales soon.
The company said in an earlier statement that total revenue is expected to rise less than 5% to about $8.85 billion this quarter. While that would beat analyst estimates of $8.76 billion, it marked Broadcom’s slowest increase in years. The company is facing an industry-wide slump in demand for the technology, and its growth has slowed sharply from a pandemic-fueled rally.
In touting Broadcom’s AI gains, Tan uses a now-common tactic for tech companies. But he, like the others, hasn’t kept up with the dramatic increase seen by his counterpart Jensen Huang at Nvidia. Broadcom may be growing in a weak general market, but Nvidia has projected a jump in sales of more than 60%.
Although Tan’s comments about artificial intelligence sent stocks into a brief post-market recovery Thursday, they fell back to around 2.3% late in the day.
Broadcom’s network components help route traffic between computers in giant data centers, and it makes custom chips for some of the largest cloud computing providers. Those customers have been racing to add more capacity to handle demand for AI services — a trend that helped send Nvidia close to the $1 trillion valuation threshold this week.
Excitement about Broadcom’s growth prospects has helped lift its shares 41% this year through Thursday’s close, making it one of the best-performing semiconductor stocks in 2023.
After that buildup, Broadcom’s report failed to impress investors — even though the numbers beat Wall Street estimates.
In the second quarter, which ended April 30, Broadcom’s earnings were $10.32 per share, excluding some items. Revenue rose 7.8% to $8.73 billion, the first time growth has been below 10% since 2020. Analysts had expected earnings of $10.15 per share and sales of $8.72 billion.
Broadcom’s chip business generated $6.81 billion in sales in the quarter, up 9% from a year ago. Infrastructure programs rose 3% to $1.93 billion.
Tan had warned analysts and investors that Broadcom’s growth during pandemic boom times would not last. Shortages of the past few years have given way to an inventory glut in some areas, causing customers to put off new orders. The company still expects to have full order books for the rest of the fiscal year that ends in October.
Broadcom chips are getting into smartphones and home networks — as well as data centers — making it a leader in technology spending. The company supplies Apple Inc. Semiconductors for iPhones that provide short-range communication. The chipmaker earlier warned that wireless sales would slow in the second quarter.
Broadcom, headquartered in San Jose, California, also branched out into enterprise software with the acquisition of security and mainframe capabilities. However, the planned purchase of VMware Inc. The cloud software maker is facing regulatory scrutiny and has taken longer than expected to close. That company also reported quarterly results after the close on Thursday, reporting estimates of missed sales and earnings.
Broadcom said it’s making good progress clearing regulatory hurdles and still expects the VMware deal to be completed in fiscal 2023.
Tan is more pessimistic about the semiconductor industry in general than many of his peers. In the long run, he said, the market likely won’t grow much faster than the United States’ gross domestic product.
It’s hard to tell if AI will change that perception, he said Thursday, because deployment of AI systems is limited to a small group of cloud computing companies. Computing systems are also difficult to build quickly due to the supplies involved.
He said it would take six months to deliver pilot components.
“You won’t succeed in less than six months,” he said. “The ability to ramp up will be more measured.”
(Share updates in the reaction in the fifth paragraph.)
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