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Broadcom Shares Slip as Revenue Forecast Underwhelms AI-Driven Expectations

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Broadcom shares declined over 3% in early trading on Friday after its third-quarter revenue forecast failed to meet the high expectations of investors who have been heavily bullish on chip stocks amid the ongoing artificial intelligence surge.

The Palo Alto-based semiconductor giant projected third-quarter revenue of approximately $15.80 billion, slightly above the analysts’ consensus estimate of $15.71 billion, according to LSEG data. However, analysts noted that expectations for Broadcom had already been elevated due to its critical role in AI infrastructure.

“High expectations drove a bit of downside,” said Bernstein analyst Stacy Rasgon, reflecting the sentiment that even marginally positive forecasts may not be enough in the current AI-fueled market climate.

Broadcom provides semiconductors to major clients like Apple and Samsung and supplies advanced networking hardware essential for AI data centers, where massive data transfers are required to power generative AI models. In addition to its networking chips, Broadcom also designs custom AI processors for large cloud providers, offering an alternative to Nvidia’s expensive off-the-shelf chips.

Despite its position in the AI supply chain, Broadcom remains exposed to global trade uncertainties, particularly around U.S. export restrictions aimed at limiting China’s access to advanced technology. “AVGO is ramping two additional customers, but they are still small. So the processor business will grow this year, but at a measured rate,” Morgan Stanley commented.

Rival Marvell Technology, meanwhile, offered a more optimistic outlook last week, forecasting stronger-than-expected second-quarter revenue driven by growing demand for custom chips supporting AI workloads in data centers.

Broadcom briefly crossed the $1 trillion market cap threshold in December, reflecting investor optimism about AI-related chip demand. Its shares have climbed roughly 12% year-to-date. However, its current valuation — with a 12-month forward price-to-earnings ratio of 35.36 — remains significantly higher than Marvell’s 20.63, according to LSEG data.

China’s SMIC Flags Chip Oversupply Risk on Weakening Demand, Rising Output

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Semiconductor Manufacturing International Corp. (SMIC), China’s largest chipmaker, has raised concerns about a potential oversupply of mature-node chips in the second half of 2025. The company, which specializes in established chips used in consumer electronics and home appliances, noted that the market could face an imbalance due to weakening demand and increased output.

During the COVID-19 pandemic, SMIC benefited from a surge in demand for its chips as people relied on consumer electronics during stay-at-home orders. However, as people return to offices and replacement demand slows, SMIC has experienced a drop in consumer-driven demand. Advanced chips for Huawei smartphones account for a small portion of SMIC’s revenue, with the company never confirming whether it produces chips for Huawei.

Co-CEO Zhao Haijun warned analysts that two key factors could impact the second half of 2025. First, the company expects a decline in order volume as demand for chips has been pulled forward into the first half of the year. Second, the increase in production capacity across the industry is likely to result in price competition among manufacturers for orders.

SMIC reported a 31.5% year-on-year increase in revenue for the October-December period, reaching $2.2 billion, meeting market expectations. The company expects first-quarter revenue to grow by 6% to 8% compared to the previous quarter. The positive share movement was attributed to broader optimism in Chinese stocks and the development of cost-effective AI models by DeepSeek, which could benefit domestic chipmakers like SMIC.

Despite the challenges, SMIC’s strong first-quarter outlook and steady capital expenditure (CAPEX) plans have bolstered investor confidence. In 2023, SMIC’s capital expenditure surged to $7.3 billion from $4.5 billion in 2021, and the company expects to maintain a similar level in 2024 and 2025.

However, SMIC’s gross profit margin has seen a decline, dropping to 20% in 2023 compared to over 30% in previous years. While profitability improved in the October-December period, Zhao expects continued pressure on profitability in 2025 due to rising depreciation costs from increased capital expenditure. Profit attributable to owners of SMIC was reported at $107.6 million for the period, below analysts’ expectations of $193.45 million.

AMD’s AI Strategy Faces Investor Scrutiny Amid Shift to Custom Chips

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Advanced Micro Devices (AMD) faces heightened investor scrutiny over its artificial intelligence (AI) strategy as Big Tech firms increasingly develop custom silicon, potentially limiting AMD’s role in AI infrastructure. The company is set to report its fourth-quarter earnings on Tuesday, with analysts forecasting a 22% revenue surge to $7.53 billion. However, competition from Nvidia and the growing adoption of proprietary chips by Microsoft, Amazon, and Meta have raised concerns about AMD’s long-term AI growth prospects.

Tech giants are ramping up investments in in-house AI chip development, benefiting companies like Broadcom and Marvell Technology, which provide hyperscalers with custom AI processors. Broadcom expects AI to represent a $90 billion revenue opportunity by 2027, a factor that helped its stock more than double last year. Marvell saw an 83% rise, while AMD’s stock fell 18% in 2024.

Despite this shift, AMD’s AI processor sales are expected to reach up to $10 billion in 2024, double its initial forecast of $5 billion. Its data center chip segment, projected to grow 82% to $4.15 billion in Q4, is expected to drive over half of total revenue. Meanwhile, its personal computer division is forecasted to rise 33% to $1.94 billion, as AMD continues to gain market share from Intel.

Supply chain constraints remain a challenge, with TSMC working to expand production capacity for AI chip packaging. However, Nvidia’s ramp-up of its latest “Blackwell” AI chips could limit AMD’s ability to secure additional manufacturing resources.

Despite these hurdles, AMD’s fourth-quarter net income is set to rise by more than 61% to $1.08 billion, reflecting strong demand for its products.