Broadcom reassures investors on AI chip demand and expects a strong second quarter

Broadcom CEO Hock Tan on Thursday reassured investors about demand for artificial intelligence (AI) chips and presented a strong forecast for the second quarter. The company also hinted at the possibility of winning new customers, which could further strengthen its position in a highly competitive market.

Strong forecast and growth in demand for AI chips

Broadcom's $AVGOforecast eased fears of cooling demand for AI chips raised by Marvell Technology's weak outlook the day before. Broadcom shares, which fell 6% on Thursday, subsequently rose 14% in extended trading after the results were released.

Broadcom expects second-quarter revenue of about $14.90 billion, beating analysts' estimates of $14.76 billion. The company is benefiting from growing demand for its own AI chips from cloud giants looking for an alternative to expensive processors from Nvidia to expand their AI infrastructure.

Broadcom's AI semiconductor revenue is expected to reach $4.4 billion in the second quarter, according to CEO Hock Tan. Large tech firms are increasingly favoring custom processors over standard chips to better tailor performance to their specific AI applications.

Expanding customer base

Broadcom is currently working with four new hyperscale customers to develop custom AI chips, expanding its client base beyond its three existing partners. These new collaborations are not yet included in the revenue estimate of between $60 billion and $90 billion by 2027.

Reuters reports that OpenAI is in talks with Broadcom to complete its first custom chip to reduce its dependence on Nvidia. Moor Insights & Strategy analyst Anshel Sag said Broadcom is allowing large cloud providers to develop their own AI accelerators, giving them more control over design and costs.

Broadcom is also exploring the use of Intel's most advanced manufacturing process, known as 18A. The first chip test wafers have already passed through Intel's manufacturing plants, which could bring new technological advantages to Broadcom.

According to analyst Kinngai Chan of Summit Insights, Broadcom has an advantage over competitors due to broader diversification in the AI segment and more customers using its specialized AI ASIC chips. ASICs (Application-Specific Integrated Circuit) are chips designed for specific tasks, which helps optimize power consumption and improve performance.

In the first quarter, Broadcom beat expectations with revenue of $14.92 billion, with the AI segment growing more than 77% to $4.1 billion. Its software division also saw a 47% increase to $6.70 billion, which also beat analysts' expectations.

Broadcom thus continues to consolidate its position in the AI semiconductor market and expand its customer base, strengthening its competitiveness against dominant players such as Nvidia.

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Source: Yahoo Finance