The quarterly performance and projections of Broadcom soared beyond Wall Street estimates. Shares in the chipmaker dropped 11 percent on Friday, the worst day since January, as investors fled the artificial intelligence trade.
Oracle fell 4.5 percent on the day after dropping 10 percent following its earnings announcement. Nvidia and Advanced Micro Devices, the two dominant suppliers of graphics processing units to AI workloads, declined by approximately 3 percent and 5 percent, respectively.
The stock market and the overall economy have been significantly impacted by AI this year, and therefore, any negative sentiment has the potential to have far-reaching effects. The Nasdaq dropped by approximately 1.69 percent on Friday, and the S&P 500 slipped by 1 percent.
The companies that are being hit the hardest are those most directly related to AI infrastructure, which has been surging as hyperscalers construct their data centers to attempt to satisfy what they call the insatiable demand of compute-intensive AI services.
Broadcom supplies custom chips to some of the biggest tech firms, and its market cap has increased multiple times over the last two years, but is expected to recover in 2025.
Analyst at Mizuho, Vijay Rakesh, informed CNBC that “This stock is up 75-80% year to date. You’re seeing a little bit of a pullback. “Squawk on the Street” on Friday. “We would be buyers on this pullback.”
Therefore, Mizuho increased its price target on the stock to $450 as compared to $435. It remained closed on Friday, slightly below $360.
Rakesh said that “This is still where the growth is. They are still the big supplier to Google on their entire hardware stack, to Meta, to Anthropic, and even OpenAI coming down the road.”
According to LSEG, Broadcom reported revenue expansion of 28 percent in the quarter, largely due to a 74 percent increase in AI chip sales, a total of $18.02 billion, surpassing to $17.49 billion average analyst estimate.
However, the adjusted earnings per share of $1.95 are higher than the average estimate of $1.86.
CEO Hock Tan of Broadcom announced that the company anticipates that this quarter, AI chip sales will rise by more than two times what they were a year ago, not only of custom AI chips, but also of semiconductors used in AI networking.
Among investors is one of the concerns is that margins are reducing, although in the short term only, through increased initial cost. CFO Kirsten Spears stated on the earnings call that “gross margins will be lower” for some of Broadcom’s AI chip systems as the firm will have to buy more parts to produce the server racks.
Broadcom also indicated that it had a backlog of $73 billion of AI orders in the next 18 months. Some of that is based on the $21 billion of orders revealed by Anthropic that the company announced as a major customer on Thursday.
Meanwhile, OpenAI is a widely hyped customer since the firm agreed to a multibillion-dollar deal in October. Tan dampened the deal prospects, informing investors late Thursday, “We do not expect much in ’26.”
Bernstein analyst Stacy Rasgon added in a note on Friday that “AI angst” was driving Broadcom’s shares lower. Rasgon wrote in a note that suggests buying the stock and increasing his price target, “Frankly we aren’t sure what else one could desire as the company’s AI story continues to not only overdeliver but is doing it at an accelerating rate.”
However, the Oracle is experiencing even greater levels of skepticism. The stock has since fallen by over 40 percent from its all-time high hit in September.
The company handily earned on earnings but burned on revenue in its report on Wednesday, and investors were aggravated that they did not receive additional information on how Oracle will fund its huge buildout that has so far necessitated mounds of debt.
CoreWeave, the data center investing company to provide cloud-based AI services, plunged 10 percent on Friday and has since dropped over 50 percent since its high in June.
