Broadcom’s recent quarterly results and optimistic outlook significantly exceeded Wall Street’s expectations, yet the company’s shares took a steep dive, plummeting 11% on Friday, marking their largest decline since January. This response came amid a broader retreat from artificial intelligence (AI) stocks, as investors sought safer investments. In a related downturn, Oracle’s shares dropped 4.5% following a prior 10% plunge after its earnings release.
Leading AI chip manufacturers, Nvidia and Advanced Micro Devices, also faced declines, with shares falling approximately 3% and 5%, respectively. The broader market felt the impact, with the Nasdaq composite declining by 1.69% and the S&P 500 falling by 1%.
Despite the drop, Broadcom remains a significant player in AI infrastructure, a sector that has seen explosive growth as large tech companies ramp up their data centers to meet an overwhelming demand for AI capabilities. Recently, Broadcom has seen its market capitalization nearly double over the past two years, reflecting its critical role as a provider of custom chips for tech giants. As Vijay Rakesh, an analyst at Mizuho, pointed out, the stock is still up about 75-80% year to date, indicating that this sell-off could represent a buying opportunity for investors.
Mizuho has raised its price target for the stock to $450 from $435, even though it closed on Friday just below $360. Rakesh emphasized that Broadcom continues to be a key supplier for major players such as Google, Meta, Anthropic, and potentially OpenAI in the future, underscoring the company’s enduring relevance in the tech ecosystem.
In the last quarter, Broadcom experienced remarkable revenue growth of 28%, driven largely by a 74% surge in AI chip sales, bringing total revenue to $18.02 billion. This performance exceeded the average analyst estimate of $17.49 billion, while adjusted earnings per share of $1.95 also surpassed expectations of $1.86.
This mixed landscape of rising fundamentals coupled with market volatility reflects a complex period for tech stocks, particularly those linked to AI, suggesting a potential for recovery for companies like Broadcom, should market sentiment shift positively again.