Broadcom shares slide as margins, OpenAI concerns overshadow strong earnings
Investing.com - Broadcom shares fell 6% in premarket U.S. trading on Friday as concerns over weak margins and a lack of immediate revenue from OpenAI overshadowed strong quarterly earnings.
The server chips maker reported upbeat guidance for the current quarter, forecasting revenue from its artificial intelligence chips to double in its fiscal first quarter from a year earlier. Broadcom guided a $73 billion AI chips backlog for the next 18 months.
Broadcom Inc (NASDAQ: AVGO) slid 4.4% to $388.50 by 04:09 ET (09:09 GMT). The stock had initially risen over 3% following the release of its earnings, and is trading up 75% so far in 2025.
Shares reversed course just after Broadcom CEO Hock Tan said during a post-earnings call that revenue from Broadcom’s non-AI chips will fall sequentially in the current quarter, amid weak demand in the segment.
Tan told analysts that Broadcom’s AI revenue had lower gross margins than its non-AI revenue, with the latter also expected to remain flat year-on-year in the current quarter.
Tan, when answering an analyst question, also said that he does not expect the company’s contract with OpenAI to begin yielding returns in 2026.
"We do not expect much in 2026," Tan said on the OpenAI contract, which will see Broadcom providing the AI startup with up to 10 gigawatts of data center infrastructure between 2026 and 2029. Tan said the deal will provide a bulk of its returns in 2027, 2028 and 2029.
Tan also said that the company was separately working with OpenAI on a custom accelerator, which was at a "very advanced stage."
Still, Tan’s protracted view on revenue from OpenAI sparked more concerns over whether the startup will be able to meet its commitments. OpenAI has become a key point of concern for the AI industry in recent weeks.
Shares of cloud major Oracle Corporation (NYSE: ORCL) tumbled on Thursday after it disclosed that a bulk of its future revenue commitments came from OpenAI.
Broadcom designs custom AI chips, and manufactures Google’s tensor processing unit, or TPUs, a class of chips which are expected to compete directly with Nvidia (NASDAQ: NVDA) in AI data centers. The company, which builds processors and components used in data centers, has emerged as a major winner of the AI trade in the past two years, given the crucial nature of its technology.
Fiscal fourth-quarter adjusted earnings per share came in at $1.95 on revenue of $18.02 billion. Analysts polled by Investing.com anticipated per-share income of $1.87 on revenue of $17.45 billion.
Overall, first-quarter revenue was guided to about $19.1 billion, beating analyst projections of $18.31 billion.
"[T]his is a solid report/outlook, although expectations were very bullish [...]. The big takeaway of the release is the blowout first-quarter AI sales guide as Broadcom benefits from Google’s TPU/Gemini momentum," analysts at Vital Knowledge said in a note.