Broadcom forecasts tepid quarterly earnings despite AI chip growth and falling stock

(Reuters) – Chipmaker Broadcom on Thursday forecast fourth-quarter revenue slightly below Wall Street expectations, hurt by sluggish spending in its broadband segment.

Despite a strong increase in orders for its artificial intelligence chips, the stock fell nearly 5 percent in extended trading.

The Irvine, Calif.-based company expects revenue of about $14 billion, while analysts polled by LSEG expected $14.04 billion.

Investor expectations for AI-related companies remain very high as they bet on AI chips and technology to drive significant growth.

Broadcom reported third-quarter revenue of $13.07 billion, beating estimates of $12.97 billion, according to LSEG data.

However, the company posted a loss of $1.88 billion on a GAAP basis, compared with a profit of $3.30 billion a year ago.

The net loss includes a one-time non-cash tax provision of $4.5 billion resulting from an intra-group transfer of certain intellectual property rights to the United States as part of a supply chain realignment.

The company raised its estimate for annual AI revenue to $12 billion, up from an earlier expectation of $11 billion, as it benefits from strong demand for its custom chips.

Broadcom’s custom chips, which are used to move large amounts of data, have seen increased orders from companies looking to streamline their data operations.

The company’s third-quarter revenue for its semiconductor solutions segment, which houses its network and custom chips, was $7.27 billion, while analysts were expecting $7.39 billion.

AI chip leader Nvidia’s quarterly forecast fell short of soaring investor expectations last week, failing to maintain its history of comfortably beating Wall Street targets.

(Reporting by Zaheer Kachwala in Bengaluru; Editing by Tasim Zahid)