AI boost lifts Broadcom forecast amid lingering enterprise weakness

7:22 pm Thursday, March 02nd, 2023

By Chavi Mehta

(Reuters) -Broadcom Inc forecast second-quarter revenue above estimates on Thursday, as increased investments in artificial intelligence spur demand for its chips used in data centers.

In a deteriorating economy, where both consumer and enterprise spending is on a decline, AI has emerged as a bright spot for chip firms such as Nvidia Corp and Broadcom, due to the technology’s strong potential applications as illustrated by OpenAI’s chatbot ChatGPT.

Broadcom expects to see “exponential” rise in demand for its networking solutions this year from hyperscale customers who are looking to deploy artificial intelligence in their systems, Chief Executive Hock Tan told analysts on an earnings call.

“We are seeing some of these hyperscalers bringing on a sense of urgency and focus, and of course, spending to be up to speed, if not to be left behind, as we see the excitement, hype perhaps, in pushing applications and workloads in generative AI,” Tan said.

Broadcom, which supplies chips used in data centers for networking and specialized chips that speed up AI work, expects networking revenue to grow 20% in the current quarter.

While analysts spotted green shoots in the AI space, they also saw weaknesses emerge in areas such as broadband and cloud spending.

“We are also seeing its end-market demand becoming more mixed,” said Kinngai Chan, analyst at Summit Insights Group.

Broadcom also announced a quarterly dividend of $4.60 per share. The San Jose, California-based company’s shares pared gains and were up 0.4% in extended trading.

The chip designer expects current-quarter revenue to be about $8.7 billion, while analysts on average expect $8.59 billion, according to Refinitiv data.

Revenue in the first quarter ended Jan. 29 rose 16% to $8.92 billion, while adjusted earnings per share of $10.33 was above estimates of $10.10.

(Reporting by Chavi Mehta in Bengaluru; Editing by Shinjini Ganguli, Maju Samuel and Krishna Chandra Eluri)