Broadcom drops 13% as AI chip forecast falls short of lofty expectations

Broadcom's $16 billion AI chip sales forecast missed Wall Street estimates by more than $1 billion, triggering a 13% stock rout that erased over $285 billion in market value and spilled into crypto markets.

Broadcom's AI chip sales forecast of $16 billion for the fiscal third quarter missed the $17.2 billion average analyst estimate, sending shares down 12.6% to $418.91 and dragging Bitcoin toward the $60,000 support level.

"The market demanded perfection, and Broadcom delivered strong results that simply weren't strong enough," Ben Bajarin, chief executive of technology consultancy Creative Strategies, said.

The Palo Alto, California-based company reported fiscal second-quarter revenue of $22.19 billion, up 48% from a year earlier but below the $22.27 billion consensus. Adjusted earnings of $2.44 a share beat the $2.40 estimate. AI semiconductor revenue reached $10.8 billion, up 143% year over year and slightly above the $10.7 billion average estimate.

The selloff reflects a widening gap between AI infrastructure spending — Big Tech is expected to pour more than $700 billion into AI this year — and the pace at which chipmakers can convert that demand into revenue. Broadcom kept its fiscal 2027 AI chip target unchanged at "in excess of $100 billion," disappointing investors who had expected an upgrade.

Chief Executive Officer Hock Tan said Broadcom now expects to ship more than 10 gigawatts' worth of AI chips in 2027, a slight increase from prior estimates, but declined to raise the long-range revenue target. The company has signed expanded deals with Alphabet's Google, Meta Platforms, Anthropic and OpenAI, with delivery timelines stretching into 2028.

The unchanged outlook opened the door for rivals. Marvell Technology, which said its custom chip business would surpass $10 billion in revenue by 2029, saw its shares fall about 4% in sympathy. Macquarie downgraded Broadcom to neutral from outperform, citing Google's push to develop AI chips in-house, and cut its price target to $437 from $513.

Broadcom's supply chain, a persistent concern for investors, appears stable. Company executives said they are "very comfortable" having secured chip supply for 2026 and 2027, assuaging fears that capacity constraints would cap growth.

The risk-off sentiment spilled into crypto markets. Bitcoin fell toward the $60,000 support level as traders unwound AI-related positions, with the CoinDesk 20 index declining alongside tech stocks. Zcash also faced selling pressure as bullish momentum faded across altcoins.

At 29.9 times forward earnings, Broadcom trades at a discount to Marvell's 61.7 multiple but a premium to the S&P 500's 27.9. UBS analyst Timothy Arcuri reiterated his buy rating with a trimmed $485 price target, calling the issue "mostly one of supply" rather than demand.

This article is for informational purposes only and does not constitute investment advice.