Broadcom shares plummeted more than 14% on Thursday, dragging other chip stocks lower, after the company's results failed to meet sky-high expectations for its custom AI chips business. The selloff, if sustained, would wipe out over $315 billion from Broadcom's market value of approximately $2.268 trillion, marking one of the largest single-day value losses in history.
The AI Boom and Broadcom's Role
Broadcom's critical role in designing custom processors for companies like Alphabet and Meta, which serve as alternatives to Nvidia's expensive chips, has made it a major beneficiary of the AI boom. After years of stagnant growth, its stock has surged more than eightfold since the launch of ChatGPT in 2022. As of the last close, shares had climbed 38% this year, including a 15% rally in the two weeks leading up to its earnings report, following strong results from rival Marvell Technology.
Missed Expectations and Competition
However, Broadcom faces intensifying competition, and its steep gains have left little margin for error, analysts noted. The company's decision to reiterate, rather than raise, its $100 billion AI revenue forecast for fiscal 2027 disappointed investors. Its second-quarter revenue of $22.19 billion also fell short of expectations, while its current-quarter AI chip sales forecast of $16 billion was slightly below Wall Street estimates.
Still Impressive Growth
Despite the disappointment, the $16 billion forecast represents more than a threefold increase from about $5.2 billion a year ago. The $100 billion forecast, given in March, underscores how quickly Broadcom has gained ground in the chip race. AI revenue stood at just $20.2 billion in fiscal 2025. Matt Britzman, senior equity analyst at Hargreaves Lansdown, described it as 'a classic case of very high expectations meeting a market that wanted perfection.' He added that Broadcom is 'one of the more exciting names in the AI infrastructure buildout, but it also came into results as one of the higher-risk names.'
Sector-Wide Impact
The results triggered a selloff in chip stocks, with Marvell down nearly 5%, while AMD, Intel, Micron, and Qualcomm fell between 1.6% and 6.5%. These stocks had rallied earlier in the week following a series of positive announcements at Computex.
CEO's Optimism and Supply Chain
Broadcom CEO Hock Tan said the company now expects to ship more than 10 gigawatts' worth of AI chips in 2027, a slight increase from previous estimates. Executives also expressed confidence in navigating the memory chip supply crunch, having secured supply for 2026 and 2027.
Analyst Sentiment
Despite the near-term disappointment, at least 22 analysts raised their price targets on Broadcom's stock, pushing the median view to $500, according to LSEG data. That represents a more than 4% upside from the stock's last close. The stock trades at 29.90 times its forward earnings estimates, compared with Marvell's 61.70 multiple and the S&P 500's 27.94. Bernstein analyst Stacy Rasgon noted, 'We suspect the shares may take a pause for the next couple of quarters. But the story gets interesting again once we enter 2027. If we have to wait a quarter or two for that story to re-emerge, that's OK, we'll wait for it.'
