Chipmaker Broadcom announced its fourth-quarter revenue forecast on Thursday, slightly under Wall Street expectations, as sluggish spending in its broadband segment hindered growth. This news resulted in a nearly 5% drop in Broadcom's shares during extended trading.

Despite an impressive increase in orders for its artificial intelligence (AI) chips, Broadcom's forecast fell slightly below expectations. The California-based company anticipates fourth-quarter revenue to be around $14 billion, just shy of the $14.04 billion estimate by analysts polled by LSEG.

Investor expectations for AI-linked companies remain high, with hopes pinned on AI chips and technology driving substantial growth. Broadcom's third-quarter revenue reached $13.07 billion, surpassing estimates of $12.97 billion, according to LSEG data. However, the company reported a significant loss of $1.88 billion on a GAAP basis, in contrast to the $3.30 billion profit recorded a year ago.

The net loss of $1.88 billion includes a one-time discrete non-cash tax provision of $4.5 billion. This tax provision resulted from the intra-group transfer of certain intellectual property rights to the United States as part of a supply chain realignment.

Despite these challenges, Broadcom remains bullish on the potential of AI, raising its annual revenue forecast for AI to $12 billion, up from the previous expectation of $11 billion. This revision comes as Broadcom benefits from the strong demand for its custom chips, primarily used for processing substantial amounts of data.

Broadcom's custom chips have witnessed heightened demand, particularly from companies seeking to streamline their data operations. However, the company's revenue for its semiconductor solutions segment, housing its networking and custom chips, came in at $7.27 billion in the third quarter, falling short of the projected $7.39 billion by analysts.

Last week, AI-chip leader Nvidia also disappointed investors, as its quarterly forecast failed to meet sky-high expectations. This deviation from Nvidia's history of comfortably surpassing Wall Street targets indicates an increasing challenge in meeting investor demands in the AI chip sector.

Despite grappling with sluggish spending in the broadband segment, Broadcom's surge in AI chip orders hints at the ongoing optimism in the potential of AI technology. The company's ability to capitalize on this demand will play a vital role in its future growth and performance in the highly competitive chip industry.