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Chipmakers Broadcom, Marvell drop as forecasts disappoint after AI-fueled surge

By Samrhitha A

(Reuters) -Chipmakers Broadcom and Marvell Technology fell on Friday after their quarterly reports failed to impress investors who had driven their shares higher in recent months on bets they will be major winners from growth in AI computing.

Broadcom was down 6% as it maintained its annual forecast on Thursday despite projecting AI-related chips to generate $10 billion in sales in 2024, while Marvell tumbled 9.2% after it forecast first-quarter revenue and profit below estimates.

Friday's selloff in Broadcom and Marvell comes a day after they had closed at record highs.

While Nvidia has been the biggest winner from Wall Street's AI euphoria, shares of Marvell and Broadcom have surged 28.5%, and 20.3%, respectively, in 2024, as investors bet the companies will also benefit from explosive spending on AI computing.

The companies' sell networking chips that help move around the large amounts of data demanded by AI computing, making them potential beneficiaries of the massive investments being made by tech giants like Alphabet.

"Marvell and Broadcom earnings show that while things are improving across the semiconductor landscape, the current quarter forecasts are still below what the market was hoping for," said Bob O'Donnell of TECHnalysis Research.

Broadcom was set to shed nearly $40 billion in market value, while Marvell was on track to lose $7 billion.

Prior to Thursday's reports, Marvell's shares traded at 40.21 times the expected earnings, compared with a forward price-to-earnings (PE) ratio of 27.58 for Broadcom and 36.49 for Nvidia. A lower PE multiple indicates a more attractive investment opportunity.

Shares of Nvidia also fell 4%, but its stock market value is on the cusp of overtaking Apple as the second-most-valuable company. Advanced Micro Devices was down nearly 1%.

Marvell and Broadcom have been grappling with weak demand from customers such as cloud service providers and telecom operators, who are clearing a build of inventory after rapidly stocking up during the pandemic to avoid supply constraints.

"Aggressive under-shipment of demand to flush out excess inventory" impacted Marvell, analysts at J.P.Morgan said.

Marvell forecast first-quarter adjusted earnings per share of 23 cents, plus or minus 5 cents, compared with an estimate of 40 cents per share, according to LSEG data. Net revenue at $1.15 billion, plus or minus 5%, was also below estimates.

(Reporting by Samrhitha Arunasalam in Bengaluru; Editing by Pooja Desai and Sriraj Kalluvila)