The numbers were good. The market reacted as if they were not. Broadcom reported results for its fiscal second quarter on Wednesday and raised its dividend, but the guidance for AI chip sales fell short of Wall Street’s expectations, and the stock dropped as much as 12 percent in intraday trading, its worst single-day decline in more than a year.
The selloff is the latest sign that the AI trade has become unforgiving. Broadcom’s AI-related revenue has been growing rapidly, driven by custom chips it designs for the large cloud companies, and the company has been among the biggest beneficiaries of the AI build-out. But the market has priced those companies for perfection, and anything short of perfection, even a small miss in a single metric, now triggers sharp declines.
The guidance that disappointed concerned the company’s AI semiconductor business, which includes the custom accelerators Broadcom designs for customers such as Google and Meta, and the networking chips that move data between them. Broadcom’s overall results were in line with or ahead of expectations, but the AI number, the one investors care most about, came in below the consensus.
The reaction has raised a question that was already circulating among analysts: whether the growth curve for custom AI chips, the so-called ASICs that Broadcom and its rival Marvell design, has started to flatten. Bloomberg, in an analysis published after the results, said the market is beginning to question whether the ASIC boom, which was supposed to be the second act of the AI chip story after NVIDIA’s GPUs, is slowing earlier than expected.
The company’s executives pushed back in the earnings call. They said the guidance reflects timing, not weakness, with some customer programs shifting between quarters, and they pointed to the company’s pipeline of custom chip projects as evidence that demand remains strong. Broadcom has long argued that the AI build-out will last for years, and its stock had reflected that confidence before Wednesday.
The timing of the disappointment matters. Broadcom’s custom chip business was supposed to be entering its strongest phase, with new programs from major cloud customers ramping through the year, and the market had built expectations around that schedule. A guidance miss in a quarter when the pipeline was supposed to be filling has a different weight than the same miss in a quiet period, which is why the stock’s reaction was so sharp.
The dividend increase, announced alongside the results, was an attempt to reassure investors of a different kind. Broadcom has been returning cash to shareholders even as it spends heavily on AI, and the increase signals that management sees the balance sheet as strong enough to do both. The gesture did not offset the guidance disappointment in the market’s eyes.
The selloff also reflects the structure of Broadcom’s shareholder base. The stock has been one of the most widely held AI names, owned by funds that treat it as a core position in the AI trade, and when such a stock disappoints, the selling is amplified by the number of holders who all want out at once. The 12 percent decline is as much about positioning as about fundamentals.
For the broader market, the episode is a warning about concentration. A handful of companies, NVIDIA, Broadcom, AMD, TSMC and a few others, now account for a large share of the gains in technology stocks, and the market’s fortunes are tied to the AI chip cycle. When one of them misses, investors are reminded that the cycle can move in both directions, and the reminder was priced in dollars on Wednesday.
The question now is whether the decline is an opportunity or the start of a correction. Analysts are divided. Some argue that Broadcom’s guidance was conservative and that the pipeline supports the company’s long-term story; others say the market was right to question whether custom AI chips can keep growing at the rate the stock price assumed. The next few quarters will provide the answer.
The episode also puts a spotlight on Marvell, Broadcom’s main rival in custom AI chips, whose stock has ridden the same wave. If the market has begun to doubt the growth curve for ASICs, Marvell will face the same questions when it reports, and the two companies’ fortunes are now linked in investors’ minds. The AI chip trade, which was built on NVIDIA’s dominance and its challengers’ growth, is entering a phase where the challengers have to prove their numbers quarter after quarter.
Broadcom’s stock closed well off its lows of the day, a sign that some investors saw the decline as a buying opportunity. But the damage was done: the company that was supposed to be the safest way to own the AI chip boom delivered a reminder of how volatile that boom can be. The dividend is higher, the guidance is what it is, and the market will be watching Broadcom’s next report more closely than any in its recent history.
