KEY POINTS
- Broadcom shares fell 12.6% on Thursday after the company projected Q3 AI chip sales of $16 billion, missing the $17.2 billion analyst estimate, and declined to raise its full-year AI semiconductor forecast.
- The selloff erased roughly $350 billion in semiconductor market capitalization, hitting Micron (-7.7%), AMD (-3%), and ARM as investors questioned whether AI revenue growth can sustain current multiples.
- Watch Nvidia's next earnings report and any follow-through selling in the Philadelphia Semiconductor Index below the 6,800 level for signals on whether this is a correction or a trend change.
Broadcom closed at $418.91 on Thursday, down 12.6% in its worst single-day decline since January 2025, after the custom chip giant's fiscal second-quarter results delivered a message Wall Street did not want to hear: AI revenue is growing fast, but not fast enough to justify the price investors were paying for it.
The Numbers That Spooked the Street
The headline metrics looked strong in isolation. Broadcom reported quarterly revenue that beat consensus, and AI chip sales doubled year-over-year. The company guided for total Q3 revenue of $29.4 billion versus the $28.61 billion consensus estimate. But the AI-specific guidance told a different story. Third-quarter AI chip sales were projected at $16 billion, below the $17.2 billion analysts expected. More critically, Broadcom did not raise its full-year AI semiconductor forecast, breaking with the pattern of upward revisions that had propelled the stock higher for the better part of two years.
Infrastructure software revenue came in at $7.18 billion, up 9% year-over-year but $140 million below the $7.32 billion estimate. And buried in the competitive landscape, reports surfaced that Broadcom is losing market share on at least one Alphabet custom AI chip build to Taiwan-based MediaTek, a development that threatens the company's positioning in the lucrative custom silicon market.
Contagion Across the Sector
The damage spread quickly. Micron Technology fell 7.7%. AMD dropped 3%. ARM Holdings, which had been trading near all-time highs, gave back ground. The Philadelphia Semiconductor Index posted its worst session in months. The only notable exception was Marvell Technology, which initially sold off but reversed to close nearly 5% higher — a sign that at least some chip names are being evaluated on individual merit rather than treated as a monolithic AI basket.
The $350 billion in erased market capitalization across the semiconductor sector is a staggering number, but it needs context. These stocks had run up enormously. Broadcom alone had more than tripled from its 2023 lows heading into earnings. The AI narrative had driven semiconductor valuations to levels that assumed near-perfect execution and perpetual upward guidance revisions. Thursday's reaction was not about bad results — it was about results that were merely good in a market that had priced in great.
Is This a Reset or the Beginning of Something Worse?
The answer depends on whether Broadcom's experience is company-specific or indicative of a broader AI spending deceleration. The company's decision not to raise its full-year outlook suggests either conservatism under new competitive pressures or genuine uncertainty about the pace of hyperscaler AI capital expenditure in the back half of the year. If the latter, Nvidia's next earnings report becomes the most important event on the semiconductor calendar.
For now, the technical picture is ugly. Broadcom broke below its 50-day moving average and is testing levels last seen in March. The broader chip sector selloff left the Philadelphia Semiconductor Index near a support level around 6,800 that, if broken, could trigger algorithmic selling and further downside.
Traders who have been riding the AI chip trade should pay close attention to two things in the coming sessions. First, whether institutional rebalancing out of semiconductors continues or whether dip-buyers emerge. Second, whether the rotation into value and defensive names — healthcare, financials, consumer staples — sustains momentum, which would indicate this is a genuine leadership change rather than a one-day event. The AI investment thesis is not dead, but Thursday proved that the market's tolerance for anything less than perfection in this space is razor-thin.
