Broadcom shares slumped more than 14% on Thursday, dragging chip peers lower, after the company's results fell short of lofty expectations around demand for its custom AI chips business.
The premarket losses, if sustained, will erase more than $315 billion from the company's market value of about $2.268 trillion, in one of the biggest one-day wipeouts ever.
Its crucial role in helping design in-house processors of firms like Alphabet and Meta that serve as alternatives to Nvidia's costly chips has made Broadcom one of the biggest winners of the AI boom.
After years of treading water, its stock has jumped more than eightfold since ChatGPT's 2022 launch.
Shares have climbed 38% this year, as of last close, including a 15% rally in the two weeks ahead of its earnings after rival Marvell Technology's strong results.
But Broadcom faces tougher competition and its eye-watering gains have left little room for error, analysts said, adding the decision to reiterate, rather than raise, its $100 billion AI revenue forecast for fiscal 2027 disappointed investors.
Its second-quarter revenue of $22.19 billion also missed expectations, while its current-quarter AI chip sales forecast of $16 billion was slightly below Wall Street estimates.
Still, the $16 billion would mark an over three-fold jump from about $5.2 billion a year ago. The $100 billion forecast given in March also shows how quickly the company has gained ground in the chip race. AI revenue stood at just $20.2 billion in fiscal 2025.
It is "a classic case of very high expectations meeting a market that wanted perfection," Matt Britzman, senior equity analyst at Hargreaves Lansdown, said. "Broadcom is one of the more exciting names in the AI infrastructure buildout, but it also came into results as one of the higher-risk names."
Sector feels the heat
The results sparked a selloff in chip stocks, with Marvell down more than 6%, while Nvidia, AMD, Intel, Micron, and Qualcomm fell between 1% and 7%. The stocks had gained sharply earlier this week thanks to a flurry of positive announcements at Computex.
To be sure, Broadcom CEO Hock Tan said the company now expects to ship more than 10 gigawatts' worth of AI chips in 2027, a slight increase from previous estimates.
Executives also said the company was "very comfortable" amid the memory chip supply crunch, having secured supply for 2026 and 2027.
Confident of the company's long-term prospects, at least 22 analysts raised their price targets on Broadcom's stock, pushing the median view to $500, according to LSEG data. That represented a more than 4% upside to the stock's last close.
The stock trades at 29.90 times its forward earnings estimates, compared with Marvell's 61.70 multiple and the broader S&P 500 index's 27.94.
"We suspect the shares may take a pause for the next couple of quarters. But the story gets interesting again once we enter 2027," Bernstein analyst Stacy Rasgon said in a note.
"If we have to wait a quarter or two for that story to re-emerge, that's OK, we'll wait for it."
