Semiconductors’ report card

Just like when a straight-A student brings home a 96 on the test instead of a 100, Broadcom suffered from unrealistic expectations.

Earlier this week, the semiconductor giant reported fiscal second-quarter earnings that were, by most measures, strong. While net income surged 88% year over year and topped expectations, revenue rose 48%, coming in just shy of forecasts.

That growth was driven by Broadcom’s booming AI business, which supplies both custom AI chips and the networking equipment needed to connect them, across six major customers including OpenAI, Anthropic, Google, and Meta.

But investors focused on the guidance instead: Broadcom said AI revenue would triple to $16 billion this quarter, but the forecast still fell short of expectations, and the company left its full-year AI target untouched. Still an A, but not quite an A+.

Shares fell 7.92% today, adding to yesterday's 12.6% plunge that erased roughly $280 billion in value—the fourth-largest wipeout ever for a US company—and dragged the broader chip sector lower as well.

Guilt by association

Broadcom is the chip-stock bellwether, and its stumble made investors nervous across the whole group. Micron was one of the first victims. Shares fell 13.25% today, a day after the company also suffered the largest market-cap wipeout in its history—a big blow for a stock that closed above $1,000 for the first time earlier this week. Meanwhile, Arm Holdings, Intel, AMD, and Qualcomm all lost more than 10% this afternoon.

Some investors argue the reaction is excessive. After all, Broadcom’s AI business is still growing at a blistering pace. But analysts see reasons for caution: TD Cowen noted that Broadcom’s margins are facing pressure as more revenue shifts toward lower-margin chip sales rather than its software business. Meanwhile, Evercore ISI’s Mark Lipacis pointed to signs that competitor MediaTek is gaining ground with Google, chipping away at a relationship Broadcom has maintained for more than a decade.

What this means for investors

So, is this a buying opportunity, or the beginning of a broader correction in AI stocks amid bubble concerns?

Citigroup still seems to think there is room left to run. While its Bear Market Checklist now shows 11.5 out of 18 warning signs—the highest reading since the financial crisis—that's still below the 17.5 flags seen during the dot-com bubble and the 13 flags that preceded the 2008 crash.

That’s good news for investors who still want in on the chip-stock action. Itau BBA analyst Stephano Gabriel said tightening memory supply and a growing number of long-term customer agreements could give Micron greater revenue visibility. Meanwhile, analysts expect several of Broadcom's custom AI chip programs to ramp up in the second half of 2027, potentially setting up stronger growth in 2028.

So, before getting swept up in the selloff, remember: Today's AI trade may have less of a growth problem than an expectations problem. And as Broadcom just learned, expectations can be the harder hurdle to clear. —SY