Broadcom (AVGO) shares tumbled 13.7% in after-hours trading Wednesday, closing at $413.62, after the company reported second-quarter revenue that fell short of Wall Street expectations and left its long-term AI-chip sales forecast unchanged. The sharp decline erased one of the few remaining strongholds in the AI-linked stock space, just as the broader market faced headwinds from rising oil prices and renewed inflation concerns.
The Dow Jones Industrial Average dropped 620.72 points, or 1.21%, to settle at 50,687.07. The S&P 500 lost 56.06 points, or 0.74%, ending at 7,553.72, while the Nasdaq Composite fell 239.92 points, or 0.89%, to close at 26,853.98. All three major indexes finished in negative territory as traders grappled with a mix of disappointing corporate earnings and macroeconomic pressures.
Broadcom's AI Revenue Growth Fails to Impress
Broadcom reported a 143% surge in AI semiconductor revenue year-over-year, reaching $10.8 billion, and guided for $16 billion in the current quarter. However, that outlook came in below Visible Alpha estimates, and after a significant run-up in the stock, investors were expecting more. "Nothing slows down what was estimated prior — they just didn't raise it," said Ben Bajarin, CEO of Creative Strategies. Ryan Lee, senior vice president of product and strategy at Direxion, noted that the retreat shows "the market demands perfection" if chip stocks are to continue their upward trajectory.
The company's push into custom chips garnered some attention, though the read-through was limited. Broadcom is seeking more custom-chip deals from major cloud firms, even as Nvidia's (NVDA) GPUs remain the go-to hardware for AI workloads. Marvell Technology (MRVL) is also competing for the same customers, with Reuters reporting that Marvell expects its custom-chip revenue to exceed $10 billion by 2029.
Broader Market Under Pressure
Earlier in the day, chip stocks held up relatively well, with the Philadelphia semiconductor index rising 1.4%. Shares of Marvell, Intel (INTC), Qualcomm (QCOM), and Sandisk (WDC) added between 3.7% and 6.7%. Meta Platforms (META) jumped 4.2%, standing out as the only one of the major AI-linked megacaps that rose, according to Reuters.
Ross Mayfield, investment strategy analyst at Baird, commented that AI stocks are trading in "a separate world" away from macro and geopolitical risk. Bill Northey, senior investment director at U.S. Bank Wealth Management, described the market as a "tug of war" between strong U.S. fundamentals and inflation risk stemming from the Middle East conflict.
Economic Data Adds to Inflation Worries
Economic numbers offered little relief for equity bulls. The Institute for Supply Management reported its services PMI at 54.5 for May, up from 53.6 in April, remaining above the 50 threshold that separates growth from contraction. The prices-paid index reached 71.3, its highest since August 2022, signaling higher input costs. The Federal Reserve's Beige Book indicated that prices increased at a "moderate to strong pace," with energy costs from the Middle East conflict cited as the main source of inflation, pushing up shipping, packaging, groceries, and fertilizer. "That will likely keep Fed officials in wait-and-see mode," said Priscilla Thiagamoorthy, senior economist at BMO Capital Markets.
Oil prices remained elevated, with Brent crude finishing at $97.81 a barrel, up 1.89%, just below the psychologically important $100 level that investors watch for potential rate risks and impacts on company margins. Financial shares slipped, with asset managers declining after Partners Group placed a cap on withdrawals from its $8.6 billion private-equity fund. KKR (KKR), Blackstone (BX), Blue Owl (OWL), and Ares Management (ARES) each lost between 3.9% and 4.2%. GameStop (GME) bucked the trend, gaining 6% on stronger quarterly revenue and news of a $2 billion buyback plan.
Broadcom's drop may prove to be a one-off event rather than a signal that the AI trade is breaking down, particularly if Friday's payrolls report is weak enough to take pressure off Treasury yields. Conversely, if the disruption at the Strait of Hormuz persists, oil could remain high, inflation could stay sticky, and the Federal Reserve may have less room to cut rates—or the market may begin pricing in further rate hikes.
