Broadcom stock had the worst day in almost a year on Friday, falling 11 percent amid the firm reporting blockbuster results and providing solid guidance. The sale highlighted increasing investor concerns about the artificial intelligence trade, which has been driving markets most of the year but is currently under increased scrutiny as values skyrocket and expenses pile. The fall spread throughout the technological sector, pulling down Oracle, Nvidia, AMD and other firms closely aligned with AI infrastructure.
Such a drastic turn forms a change in market mood. Investors seem to be growing more cautious of the risks in the near future, whilst long-term prospects of AI hardware remain robust. The success of AI in companies will no longer guarantee strong performance with the ability to convince markets.
Earnings Beat Fails to Calm Investor Nerves
Broadcom’s quarterly performance exceeded Wall Street expectations across the board. Revenue jumped 28% year over year to $18.02 billion, well above analysts’ estimates, driven largely by a 74% surge in AI chip sales. Adjusted earnings per share of $1.95 also topped forecasts, reinforcing the company’s position as one of the most important suppliers in the global AI ecosystem.
Chief executive Hock Tan said Broadcom expects AI chip revenue to double in the current quarter compared with a year earlier, reaching $8.2 billion. Demand continues to come from both custom AI processors and networking chips used in massive data center buildouts by hyperscale customers.
Yet the impressive figures failed to stop investors from heading for the exits. The stock’s decline marked its worst single-day performance since January, reflecting fears that the AI boom may be entering a more volatile phase where costs, margins and customer concentration matter more than raw growth.
Margin Pressures Raise Short-Term Concerns
One of the biggest issues weighing on Broadcom’s stock is pressure on margins. While revenue growth remains strong, executives acknowledged that profitability could take a hit in the short term due to rising costs associated with building complex AI systems.
Chief financial officer Kirsten Spears told analysts that gross margins will be lower for some AI chip systems because Broadcom needs to purchase additional components to produce full server racks. Such increased initial investments are required to satisfy the customer demand, but they also harm margins in the initial years of deployment.
Analysts argue that this trade-off between growth and profitability is emerging as a new theme in the AI supply chain. To obtain long-term contracts with large customers, companies are competing to build capacity rapidly, sometimes sacrificing short-term margins.
AI Infrastructure Stocks Feel the Pressure
Broadcom’s decline did not occur in isolation. Oracle stock dropped 4.5 percent on Friday, regressing on losses after the stock dropped 10 percent earlier in the week after the company released a poor earnings report. Oracle has since lost over 40% of its value since it reached a record high in September, with investors uncertain how the company intends to fund its colossal AI-based data center build-out.
The two giants in AI graphics processing units, Nvidia and Advanced Micro Devices, dropped significantly as well, decreasing by approximately 3% and 5. CoreWeave, an up-and-coming AI cloud company that has invested heavily in data centers, fell 10% and has since lost over half its value since it hit its high in June.
The broader impact was felt across the market. The Nasdaq Composite fell nearly 1.7% on Friday, while the S&P 500 declined about 1%. Given AI’s outsized role in driving market gains this year, even a modest shift in sentiment has far-reaching consequences.
Analysts See Opportunity Beneath the Sell-Off
Despite the sharp pullback, some analysts argue that the market reaction has been overdone. Vijay Rakesh of Mizuho described the decline as a natural correction after an extraordinary rally. Broadcom’s stock is still up roughly 75% to 80% for the year, he noted, and the company remains deeply embedded in the AI strategies of the world’s largest technology firms.
Mizuho raised its price target on Broadcom to $450 from $435, even after the sell-off, and said it would be a buyer at current levels. The firm cited Broadcom’s extensive relationships with Google, Meta, Anthropic and potentially OpenAI as evidence that long-term demand remains intact.
Bernstein analyst Stacy Rasgon echoed that view, calling the sell-off a case of “AI angst” rather than a fundamental deterioration in the business. He argued that Broadcom’s AI story continues to exceed expectations and is accelerating rather than slowing.
Backlog Signals Strong Long-Term Demand
One of the most compelling data points in Broadcom’s report was its massive AI backlog. The company said it has $73 billion in AI-related orders scheduled over the next 18 months, providing significant visibility into future revenue.
A notable portion of that backlog includes $21 billion in orders from Anthropic, which Broadcom recently disclosed as a major customer. The scale of these commitments suggests that leading AI developers are doubling down on infrastructure investments, even as public markets grow more cautious.
However, some investors were disappointed by comments regarding OpenAI. While Broadcom announced a multibillion-dollar agreement with OpenAI earlier this year, Tan told investors that the company does not expect much revenue contribution from the partnership in 2026. That tempered expectations for near-term upside from one of the most closely watched AI relationships.
AI Boom Faces a Reality Check
The severe sell-off of Broadcom and its competitors indicates that the AI trade is getting into a more mature and complex stage. Investors are no longer ready to reward growth by any means. Instead, they are analysing margins, balance sheets and the sustainability of customer demand.
Nevertheless, not many analysts reckon that the AI boom is at an end. The need to provide services with heavy compute requirements is high, and hyperscalers remain committed to capacity building. The recent pullback can be a recalibration, and not collapse.
In the meantime, the Broadcom gambit is a warning that even the strongest market stories can change within a short time. As AI keeps reinventing the world economy, the firms that make it a reality will be under more and more pressure to demonstrate that they are not only able to expand, but that they can do it with profit.