Broadcom Inc. shares sank sharply at the end of the week as investors reassessed how quickly the chipmaker can turn its booming pipeline of artificial-intelligence hardware into profits, underscoring growing scrutiny of the sector’s sky‑high valuations.
The stock fell more than 11% in New York trading on Friday, its steepest single‑day decline in over 10 months, wiping out more than $200 billion in market value even after the company delivered quarterly results that beat Wall Street expectations. according to Bloomberg and Yahoo Finance.
On the surface, Broadcom’s latest quarter looked like a classic AI‑boom success story. The company reported fiscal fourth‑quarter revenue of about $18 billion, ahead of analyst estimates of roughly $17.5 billion, and earnings per share that also topped forecasts. AI‑related semiconductor revenue is set to double to around $8.2 billion year‑on‑year in the current quarter, signaling that the company is a direct beneficiary of the rapid build‑out of AI data centers.
Yet investors fixated instead on signs that the profitability of that growth may be under pressure. Broadcom guided for a gross margin of about 76.9% for the current quarter, down from 79% a year ago and from 77.9% in the fourth quarter, a trajectory that fueled concern that AI systems may be less lucrative than earlier hoped. Those margins remain exceptionally high by semiconductor industry standards, but in a market priced for perfection, any sign of compression can be enough to trigger a selloff.
During a call with analysts, Chief Executive Hock Tan highlighted a massive $73 billion backlog of AI product orders to be shipped over the next six quarters. For most companies, that kind of visibility would be reassuring. But for a stock that had surged about 75% year‑to‑date through Thursday’s close, the figure landed as a disappointment for some investors who had expected even more aggressive guidance.
Tan stressed that the backlog should be seen as a “minimum” level of demand and suggested additional AI orders are likely as hyperscale cloud providers ramp up capacity. Still, he stopped short of giving a dedicated AI revenue forecast for 2026, calling it a “moving target,” a stance that left analysts without a clear line of sight on how fast AI sales will scale from here. That omission was a key factor behind the share‑price reaction, according to several market commentaries.
Broadcom has emerged as a critical behind‑the‑scenes supplier in the generative‑AI race, even as Nvidia continues to dominate the market for general‑purpose AI accelerators. The company designs custom AI semiconductors and networking gear used by leading model developers and cloud platforms, including AI startup Anthropic and Alphabet’s Google Cloud.
In the latest quarter, orders from Anthropic alone reached about $21 billion, reflecting a rapid acceleration as the startup builds out its next generation of AI infrastructure, according to reporting by Yahoo Finance based on Broadcom’s disclosures. Broadcom has also inked a multiyear partnership with OpenAI under which the ChatGPT maker will rely on custom chips and high‑speed networking components to power its services, a deal expected to deepen Broadcom’s role in the AI supply chain even if near‑term revenue recognition is lumpy.
Still, the market reaction suggests that investors want more than big‑ticket contracts and headline backlog numbers. They are increasingly demanding clarity on when those deals will convert into consistent, high‑margin revenue — and on how Broadcom will defend its economics as competition in custom AI silicon intensifies.
Broadcom’s slump rippled across the technology sector, feeding into a broader debate over whether AI‑related stocks have run too far, too fast. The company’s weak margin outlook and cautious AI commentary helped drag the Philadelphia Semiconductor Index lower, and contributed to intraday declines in the S&P 500 and Nasdaq Composite on Friday, with Reuters noting that the guidance “reignited AI bubble fears” among some traders.
The selloff came just as U.S. equity benchmarks had been setting or nearing record highs on optimism that the Federal Reserve will cut interest rates in 2026, highlighting how dependent recent market gains have been on a narrow group of AI‑linked giants. As in previous tech cycles, that concentration magnifies the impact when a marquee name fails to clear high expectations.
Broadcom’s experience illustrates a tension at the heart of today’s AI gold rush. Building and deploying custom AI systems — from chips to full racks of servers — is enormously capital‑intensive. Hyperscalers are racing to invest, but they are also pushing hard on pricing and efficiency as they confront their own mounting infrastructure bills.
For suppliers like Broadcom, that means brisk demand does not automatically translate into ever‑expanding margins. The company has been upgrading its networking equipment to move data faster within and between data centers — a prerequisite for training ever larger models — while also scaling production of advanced custom chips. Industry analysts note that such investments can initially weigh on profitability even as they secure long‑term customer relationships.
For now, few on Wall Street doubt that AI will remain a powerful structural driver for Broadcom’s business. The company sits at the center of a once‑in‑a‑generation build‑out of computing infrastructure, with deep ties to leading AI labs and cloud providers. Its long‑term incentive plan for Tan, which ties a large share grant to hitting up to $120 billion in AI revenue by 2030, underlines management’s belief that the opportunity is still in its early innings.
But Friday’s rout is a reminder that in a market crowded with AI narratives, investors are no longer impressed by growth alone. They are demanding clearer timelines, resilient margins and more granular visibility into how the economics of AI scale over time. As Broadcom and its peers continue to report in the coming quarters, the gap between AI promise and payoff is likely to remain one of the most closely watched storylines on Wall Street.
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