Broadcom sparks a chip stock sell-off. Is this the start of a bigger turn?
Chipmaker Broadcom declined to boost revenue guidance on Wednesday despite delivering robust quarterly results, triggering a 15% drop in its share price in premarket trading on Thursday. The disappointment spilled over into other semiconductors, with Micron , AMD , SanDisk and Intel all down in morning trading. The big question for investors is whether this is a mild pause in an overstretched group after an historic run or the start of a bigger re-assessment of the chip industry’s true earnings prospects. A few developments pointed to this just being a pause. Hyperscalers — like the chip sector beholden to the big artificial intelligence trend — shrugged off the Broadcom situation. Alphabet , Amazon , Meta and Microsoft all started Thursday trading in the green while chipmaking behemoth Nvidia was basically flat. Plus, a look at which stocks were getting hit the hardest on Thursday suggests this was more about profit-taking in the names trading at the most historical extremes, rather than any concern Broadcom’s fundamentals were signaling a turn in the group’s earnings trajectory. Of the 20 S & P 500 technology stocks that are trading the most above their long-term trendline (the 200-day moving average), 19 were lower on Thursday – evidence that traders were disregarding fundamentals and just claiming profits for the best performing shares. The group seeing the most selling also included non-chip names like Dell and HPE. Put another way, a bunch of these stocks were due for a pullback. The S & P 500 information technology index closed Tuesday with an 82 relative strength index and was 28% above its 200-day moving average, according to a Wednesday note from BTIG analyst Jonathan Krinsky. (RSIs above 70 indicate a stock has risen very quickly and could be due for a pullback.) “That has only occurred in ten unique periods since 1990,” he wrote. “If the week ended right now, it would be the best 10-week gain (+44.6%) in the history of the S & P 500 tech sector.” Krinsky told CNBC on Thursday that the market has been pushing historical extremes for weeks, citing highs against 50-day and 200-day moving averages that haven’t been seen in decades. “There’s just a lot of extremes that we haven’t seen in 25 years,” he said. Broadcom’s fundamentals Wall Street had mostly positive things to say about Broadcom after the earnings call despite tempering expectations. Some analysts were nonplussed at the double-digit share price drop. Broadcom simply doubled down on its fiscal-year 2027 guidance for $100 billion in AI revenues, rather than raising it. Analyst Joseph Moore at Morgan Stanley called the reaction “somewhat surprising” in light of recently communicated changes to growth prospects for some of Broadcom’s products. AVGO YTD mountain Broadcom, YTD “We thought the nearer term issues around racks were well telegraphed, and also that it was unlikely that we would see substantive incremental changes from ‘well over $100 billion,'” he wrote in a Thursday note. After going parabolic through April and part of May, semiconductors could be due for a sectoral reset that’s independent of the broader boom in AI and tech as a whole. “We suspect [Broadcom] shares may take a pause for the next couple of quarters,” Stacy Rasgon at Bernstein wrote on Thursday, looking ahead to a potential performance surge in 2027. “At the end of the day we have a company growing revenues and EPS > 50% … in an environment that is only getting stronger. If we have to wait a quarter or two for that story to re-emerge, that’s OK, we’ll wait for it,” he said. Analysts did note some loss of business for Broadcom with its hyperscaler customer Alphabet. The chipmaker had been an exclusive supplier, analysts said, for one of Alphabet’s custom AI chip builds, but is now losing some market share to Taiwan-based semiconductor company MediaTek. Broadcom’s revenue share for Alphabet’s tensor processing units is expected to fall from around 95% in 2026 to 80% in 2027 and 65% in 2028, according to a Thursday analysis from Macquarie. “Broadcom was previously the only vendor in Google’s supply chain. However, Google is now working with MediaTek … and developing in-house capabilities,” Arthur Lai at Macquarie wrote. Analysts suggested it was only natural for Google to use a range of suppliers beyond Broadcom for its TPUs since its requirements are so large. “Broadcom did note it expects some modest supplier diversification given the magnitude of demand upside from that customer,” James Schneider at Goldman Sachs wrote in a Wednesday note.
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