Broadcom (AVGO) reported quarterly results and future guidance that surpassed market expectations across the board, yet the capital market reacted in a starkly different manner. Its stock price plummeted by over 11% in a single day following the earnings release, marking its worst daily performance this year. This phenomenon clearly indicates that market enthusiasm for artificial intelligence-themed trading is significantly cooling, and the global AI supply chain is undergoing a concentrated stress test. This pullback is not an isolated incident; related companies such as Oracle (ORCL), Nvidia (NVDA), and Advanced Micro Devices (AMD) have also seen varying degrees of stock price declines recently. The shift in market sentiment has quickly spread to the broader market, causing both the Nasdaq and the S&P 500 indices to retreat simultaneously.
From a fundamental perspective, Broadcom’s performance remains robust. The company’s revenue grew by 28% year-over-year last quarter, with AI chip sales surging by 74% to $18.02 billion. Adjusted earnings per share also exceeded expectations. CEO Hock Tan further projected that AI chip sales for the current quarter would double year-over-year. Supporting this optimistic outlook is the company’s disclosure of a massive $73 billion backlog in AI-related orders over the next 18 months, including approximately $21 billion in orders from key customer Anthropic. However, some investors have expressed concerns about short-term profitability. The Chief Financial Officer noted that gross margins would face pressure in the near term, as certain AI chip systems require the purchase of additional components. This concern over profit quality and the sustainability of growth has become a key factor in the shift in market sentiment.
Following the earnings release, Broadcom received positive assessments from several Wall Street investment banks. Analysts at Morgan Stanley described the company’s performance as “outstanding,” with AI-related revenue consistently exceeding expectations, and consequently raised their target price. Analysts at Jefferies also highlighted that Broadcom’s AI business story continues to expand, with new clients and orders emerging consistently. Analysts at Wells Fargo similarly emphasized the acceleration in Broadcom’s AI business momentum. However, amidst the widespread optimism, cautious analyses also emerged. Morgan Stanley analysts specifically noted that large-scale system rack orders from Anthropic, based on Google’s TPU architecture, would have significantly lower gross margins than the company’s average. They also pointed out that revenue models for such businesses are more volatile, and their repeatability in the future remains uncertain. This detailed analysis of the specific business models and profit structures underlying high growth reveals a more rational and scrutinizing attitude from the market.
Analyst perspectives also suggest that the sector’s pullback reflects a phased adjustment in market sentiment rather than a fundamental deterioration in the underlying fundamentals. As AI transitions from thematic investment to the delivery of tangible results, companies across the supply chain will face stricter re-evaluations and differentiation challenges.
