What Happened?
Shares of fabless chip and software maker Broadcom (NASDAQ: AVGO) fell 10.7% in the afternoon session after investors locked in some profits amid margin anxiety as the company reported a top-and-bottom-line earnings beat.
While revenue jumped 28% and AI sales surged 74%, management guided for gross margins to fall by ~100 basis points sequentially. This fueled a bearish view: the company's booming AI hardware business is structurally less profitable than its legacy software segments, causing "margin dilution" as it grows.
The sell-off was deepened by Oracle's contagion. Earlier in the week, Oracle spooked the market with massive capital expenditure hikes, signaling that AI infrastructure is becoming exorbitantly expensive to build. When Broadcom CEO Hock Tan added that 2026 AI demand was "hard to pinpoint," it shattered the perfection priced into the stock. After a 75% rally during the year, investors seized this moment to lock in profits, fearing that AI growth is becoming costly and opaque.
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What Is The Market Telling Us
Broadcom’s shares are very volatile and have had 25 moves greater than 5% over the last year. But moves this big are rare even for Broadcom and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 4 days ago when the stock gained 2.2% on the news that reports surfaced that Microsoft was in discussions with the chipmaker to design its future custom chips, potentially shifting a major contract away from rival Marvell Technology. The potential deal represented a major new long-term revenue stream for Broadcom. News of the talks had an immediate market impact, as shares of Marvell fell sharply. The development highlighted the competitive landscape among chip designers as large tech companies sought partnerships to boost their technological capabilities. Adding to the positive sentiment, Cantor Fitzgerald raised its price target on Broadcom's stock to $525 from $450 and maintained its Overweight rating.
Broadcom is up 57% since the beginning of the year, but at $364.13 per share, it is still trading 11.8% below its 52-week high of $412.97 from December 2025. Investors who bought $1,000 worth of Broadcom’s shares 5 years ago would now be looking at an investment worth $8,842.
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