Broadcom missed Wall Street expectations for second-quarter revenue Wednesday, as increased competition in the custom semiconductor market weighed on gains from its AI chips. Shares fell more than 11% in extended trading.
Second-quarter revenue came in at $22.19 billion, missing estimates of $22.27 billion. Broadcom is racing against Nvidia, whose graphics processors remain the industry standard for AI workloads. Rivals like Marvell Technology are also making inroads, with Marvell projecting its custom chip business would exceed $10 billion in revenue by 2029.
The boom in inference - the process by which models respond to user queries - has made custom chips crucial, driving more orders and intensifying competition.
Broadcom's ability to meet AI demand has also been tested by a strained supply chain. Executives flagged in March that capacity at key manufacturing partner TSMC was a "bottleneck" and that lead times for other components like printed circuit boards had stretched significantly.
"Today's miss on revenue and subsequent post-market pullback shows the market demands perfection for this chip rally to keep running," said Ryan Lee, senior vice president at Direxion.
Still, Broadcom has been one of the biggest beneficiaries of the AI race, developing custom chips for hyperscalers such as Meta and Alphabet's Google. The company forecast third-quarter revenue of about $29.4 billion, above the average estimate of $28.54 billion. CEO Hock Tan said Q3 semiconductor revenue from AI would grow over 200% year-over-year to $16.0 billion, though that is below estimates of $16.36 billion.