Chip manufacturers experienced their worst day in over two weeks, with the Philadelphia Semiconductor Index (SOX) falling more than 6% at one point before closing down approximately 2%. The direct trigger for the sell-off was chip giant Broadcom (AVGO) issuing AI chip sales guidance that fell short of expectations, causing its stock to plunge nearly 13% — its largest single-day drop since the beginning of 2025. At the individual stock level, Micron Technology (MU) fell nearly 8%, Arm (ARM) dropped over 8%, AMD (AMD) declined more than 7%, Qualcomm (AVGO) fell over 4%, and Intel (INTC) dropped more than 3%. Optical communications concept stocks were not spared either, with Ciena plunging nearly 16% and POET falling nearly 7%.
Broadcom expects AI semiconductor revenue of approximately $16 billion in the third quarter of fiscal 2026, representing year-over-year growth of over 200%, yet falling short of the average analyst estimate of $17.2 billion. The company also forecasts full-year fiscal 2026 AI chip revenue of about $56 billion, also below market expectations. More importantly, Broadcom maintained its fiscal 2027 AI chip revenue guidance of “over $100 billion” unchanged, rather than significantly raising it as the market had hoped.
Analysts pointed out that the main reason for Broadcom’s sharp stock decline was not weak earnings per se, but rather the extremely high market expectations leading into the report. As of Wednesday’s close, Broadcom’s stock had rallied more than 65% from its early April lows, meaning any guidance falling short of an “explosive” upside surprise could trigger profit-taking.
In stark contrast to the apparent panic in the broader market, derivatives markets are sending strong buy-the-dip signals. The co-head of derivatives strategy at Susquehanna International Group noted that investors who missed out on the recent chip stock rally are viewing this pullback as a long-awaited “discounted buying opportunity.” A large number of clients are selling put options on plunging chip stocks such as Broadcom and Micron — essentially a bullish bet.
The managing partner of alternative investment firm Cohalo stated that the disappointment over Broadcom’s guidance reflects more the company’s own competitive rhythm rather than a widespread predicament facing the entire chip industry, and early-morning concerns are expected to gradually ease.
Bernstein analysts pointed out that AI business revenue is inherently volatile, and a single quarter’s data cannot fully reflect long-term trends. Broadcom expects AI revenue to still grow approximately 200% year-over-year next quarter. The firm maintained its “Outperform” rating on Broadcom and raised its price target from $525 to $550. Goldman Sachs analysts similarly expressed a preference for buying aggressively after the sharp pullback, maintaining a “Buy” rating and raising their price target from $500 to $525. KeyBanc Capital and Mizuho Securities also raised their price targets, though Macquarie downgraded the stock from “Outperform” to “Neutral.”
