According to The Economic Times, Broadcom's revenue miss pressured chip stocks as the market opened on Thursday, with the S&P 500 falling 37.1 points (0.49%) to 7,516.54 and the Nasdaq dropping 274.7 points (1.02%) to 26,579.297 at the opening bell. The broader selloff came as equity investors took a breather after a strong rally to record highs. The Dow Jones Industrial Average rose 299.0 points (0.59%) to 50,986.1, showing mixed market sentiment. As per CNBC TV18, Broadcom Inc. shares had plunged 6% in after-hours trading after the company's Q3 revenue guidance disappointed Wall Street analysts, with the stock having gained 14% over the last four sessions before the disappointing guidance announcement. However, the latest trading session saw Broadcom shares plunging 14.4% shortly after the opening bell, weighing heavily on the broader technology sector. According to NDTV, the stock fell by as much as 15% on Thursday, marking the biggest intraday decline since January 2025, with shares down 14% at $411.86 at 9:37 a.m. in New York.
As reported by CNBC TV18, Broadcom provided revenue guidance of $29.4 billion for Q3, which was higher than the average estimate of $28.5 billion but much lower than the top-end estimate of $37.5 billion. For the full fiscal year, the company expects to sell AI chips worth $56 billion, again falling short of expectations of $57.6 billion. The company's fiscal year ends in October. However, latest developments show CEO Hock Tan delivering a step change in guidance with Q3 revenue expected at approximately $29.40 billion, implying 84% year-over-year growth, dramatically above the prior $22B Q2 run-rate. AI semiconductor revenue is expected to reach $16.00 billion in Q3, representing over 200% year-over-year growth from Q2's $10.8 billion result. As per NDTV, AI semiconductor revenue will be $16 billion in the fiscal third quarter running through July, falling well below analysts' expectations of $17.2 billion on average. The earnings "failed to live up to the sky-high expectations embedded in the stock price," reflecting the market's high expectations for the semiconductor giant.
According to CNBC TV18, for the second quarter that just concluded, Broadcom reported sales of $22.2 billion, in-line with expectations of $22.1 billion. Sales were up 48% on a year-on-year basis. AI semiconductor sales were at $10.8 billion, also in-line with expectations of $10.7 billion. The company generated $10.3 billion of free cash flow during Q2, up 60% from a year ago and ended the quarter with nearly $19.6 billion in cash. Semiconductor revenue soared 79% year over year to $15 billion in Q2, while infrastructure software grew just 9% to $7.2 billion. Semiconductors now account for 68% of total revenue, up from 56% a year ago. As per NDTV, earnings climbed to $2.44 a share, excluding some items, compared with an estimate of $2.39.
CEO Hock Tan has positioned Broadcom as a key alternative to Nvidia in the AI accelerator market, with the company signing and expanding long-term deals with major tech companies. According to NDTV, Broadcom has signed and expanded long-term deals with companies like Alphabet's Google, Anthropic PBC and Meta Platforms Inc., though questions remain about how much revenue will be recognized in each quarter. The company is taking a bigger role in financing chip purchases, with Apollo Global Management Inc. and Blackstone Inc. working on a roughly $36 billion debt financing deal to help Anthropic pay for its Google chips that Broadcom helped develop. Broadcom is backstopping payments on the largest portions of this transaction. Tan said the partnership will deploy more than 20 gigawatts of computing capacity through 2028. The company has already begun delivering chips to OpenAI and is on track for production later this year, with a contract to deploy 1.3 gigawatts of capacity in 2027 as part of an agreement for 10 gigawatts by 2029. Additionally, Broadcom will deploy 3 gigawatts of computing power for Meta through the end of 2028, with an initial order of 1 gigawatt beginning delivery in the second half of next year.
The weakness extended across the semiconductor industry, with Arm Holdings declining 6.1% and Micron Technology dropping 6.3% as investors reassessed growth prospects following Broadcom's results. As reported by Livemint, the disparate moves reflect a rotation away from the leading tech stocks and into the lower-beta, more traditional blue-chip shares. The broader semiconductor sector faced pressure as investors questioned the sustainability of AI chip demand growth, with Broadcom's disappointing guidance contributing to the sector-wide decline. Despite the recent decline, Broadcom shares are still up about 19% this year, having added roughly $270 billion in market value over the five trading sessions before the earnings report, fueled by AI optimism. The selloff highlighted the elevated expectations surrounding AI-linked companies, where solid financial performance may no longer be sufficient to satisfy investors seeking outsized growth projections.
