AI chipmaker Broadcom is struggling behind competition despite better-than-expected quarterly earnings.
The California-based chipmaker Broadcom reported better-than-expected Q1 earnings, though 2024 forecasts disappointed investors. Pre-market shares dropped 1.28% on Friday morning.
Quarterly earnings came in at $11.96 billion compared to the $11.72 expected. Net income for the first quarter amounted to $5.25 billion, above analysts expectations of $5.01 billion.
However, Broadcom failed to impress investors after forecasting $10 billion in revenues from AI chips alone in 2024. While that is an improvement from 2023, it will not change overall revenues of $40 billion.
This announcement disappointed investors, who expected Broadcom to skyrocket in revenues like its competitors, mainly Marvell Technologies and Nvidia.
“For companies whose chips are more tangentially related to the AI gold rush,” Bob O’Donnell of TECHnalysis Research said, “there will inevitably be starts and stalls in growth rates that can’t easily be mapped to the big AI trends.”
Nvidia broke expectations for Q4 with $22.1 billion in revenues and a net income of $12.28 billion. Nvidia is by far the largest company in the AI chip sector, controlling a share of roughly 80%.
Nevertheless, Broadcom is also a necessary component of the AI value chain because of its cloud services. Generative AI rendered old data centers obsolete, and Broadcom was quick to offer up-to-date solutions.
Moreover, Broadcom acquired two software companies, VMware and CA Technologies, to enhance its AI portfolio and integrate vertically in the sector.
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Fierce competition
Despite all its cutting-edge cloud technologies and competitive strategies, Broadcom still fails to scratch Nvidia’s dominance. Its H100 and A100 chips are crucial components of almost every Large Language Model, including OpenAI’s ChatGPT and Google’s Gemini.
While Nvidia does not disclose its prices publicly, sources within the company say one chip could cost as much as $30,000.
No other chipmaker has yet managed to even come close to Nvidia’s market position. Intel, formally the world’s largest chipmaker, has now a fraction of Nvidia’s capitalization.
Reuters reported last month that Broadcom is working on a new custom AI chip. This new product will be customizable by the client, potentially increasing its LLM’s computing power.
The stage of development of this new chip is not clear, and other reports suggest Nvidia is also working toward a similar product.
Meanwhile, ChatGPT founder Sam Altman is reportedly seeking funds to create its own AI chip company. The tech pioneer is looking for up to $7 trillion in capital, with reports of several trips across the Middle East looking for investors.
