Broadcom tumbles 11% despite blockbuster earnings as 'AI angst' weighs on Oracle, Nvidia

Broadcom's latest earnings report showcased impressive quarterly results and a positive outlook, exceeding Wall Street's expectations. However, this wasn't enough to prevent a significant drop in the chipmaker's stock, which fell by 11% on Friday — marking its steepest decline since January. Investor anxiety surrounding the artificial intelligence sector played a pivotal role in this downturn. The tech giant Oracle also faced challenges, experiencing a 4% drop in its stock, following a more substantial 10% plunge the day before after its earnings release. While AI has been a driving force in the stock market and economy this year, any hint of negativity can trigger widespread repercussions. On Friday, the Nasdaq composite fell approximately 1.4%, and the S&P 500 saw a decline of nearly 1%. Companies heavily invested in AI infrastructure have been particularly affected, especially as major data center developers strive to meet the soaring demand for advanced AI services. Broadcom, which manufactures custom chips for leading tech firms, had seen its market capitalization nearly double over the past two years, but analysts are now advising caution amidst this pullback. Vijay Rakesh, an analyst at Mizuho, remarked, "This stock is up 75-80% year to date. You're seeing a little bit of a pullback. We would be buyers on this pullback." Mizuho adjusted its price target for Broadcom’s stock to $450, up from $435, although it traded below $364 by Friday afternoon. Rakesh emphasized the continuing growth potential for Broadcom, highlighting its prominent role as a supplier for major companies like Google, Meta, Anthropic, and even OpenAI in the future. The company reported a remarkable 28% revenue increase for the quarter, driven by a staggering 74% rise in AI chip sales, totaling $18.02 billion — surpassing the average analyst estimate of $17.49 billion. Adjusted earnings per share reached $1.95, exceeding the expected $1.86. CEO Hock Tan projected that AI chip sales this quarter would reach $8.2 billion, doubling from the previous year, thanks to both custom AI chips and networking semiconductors. Despite the strong performance, investor concerns linger over declining profit margins due to rising initial costs. CFO Kirsten Spears pointed out during the earnings call that some of Broadcom's AI chip systems would experience lower gross margins due to the necessity of purchasing additional components for their server racks. Broadcom also disclosed a substantial backlog of $73 billion in AI orders set to be fulfilled over the next 18 months, including $21 billion from Anthropic, which emerged as a key customer. Although OpenAI has been a widely recognized partner following a major agreement last October, Tan tempered expectations for future contributions, stating, "We do not expect much in '26." Bernstein analyst Stacy Rasgon noted that "AI angst" was a significant factor in the decline of Broadcom's shares, adding that despite the company's remarkable AI growth story, market sentiment remains cautious. Meanwhile, Oracle's stock has seen a more severe downturn, dropping over 40% from its peak in September, following a mixed earnings report that disappointed investors with its lack of clarity on financing its ambitious expansion plans. CoreWeave, a company investing in AI cloud services, also suffered, plunging 9% on Friday and losing over half its value since peaking in June.