Broadcom (AVGO) just posted the kind of quarter most chipmakers can only dream about. Record revenue, AI sales up triple digits, and a growing roster of marquee customers.
Then the stock fell.
Shares of Broadcom dropped 12.59% on June 4 to close at $418.91, the steepest one-day fall in over a year.
The slide didn’t stop there. By the close on June 9, the stock sat at $396.60, down 18.64% across five trading days.
The stock’s price drop may be tied to something CEO Hock Tan said.
Why Broadcom stock kept sliding after a record AI quarter
Investors expected Broadcom to raise its AI forecast, but it didn’t.
Instead of lifting the company’s target of more than $100 billion in AI semiconductor revenue by fiscal 2027, Tan reaffirmed it, according to CNBC.
And this made the market uncomfortable.
Then the bigger blow followed.
We are only chips.
Tan said Broadcom will now sell “chips only,” stepping back from the fully integrated AI systems it had previously promised customers, according to the earnings call transcript on Investing.com.
That move dampens hopes for the higher-margin business that investors were counting on.
What Broadcom does and how its AI chip business got this big
Most people know Broadcom as a chip company, and that label fits.
It co-designs custom AI accelerators, called XPUs, with individual cloud giants, then sells the networking silicon that links thousands of those chips inside a data center.
That business has exploded. AI semiconductor revenue jumped 143% year over year to $10.8 billion last quarter, while total revenue hit a record $22.19 billion, up 48%, Bloomberg reported.
That run-up made the fall harder.
AVGO had rallied for weeks into earnings, which pushed the bar for success well above the company’s official guidance.
The “chips only” shift that worried Broadcom’s AI backers
Selling chips only means giving up the servers and full systems that carry fatter margins than chips alone do, and the pressure is already showing.
Broadcom guided third-quarter gross margin down to 74% from 77%, because lower-margin AI chips now make up a bigger slice of revenue than its software business, Barron’s reported.
Related: HSBC massively revamps Broadcom’s stock price target
The shift lands hardest on the AI labs that buy Broadcom’s custom silicon.
Tan named Anthropic, Google, Meta, and OpenAI among six core custom-chip customers, all of which design their own silicon through partners to control cost and supply.
Why Google leaning on other suppliers matters for AVGO
Hok Tan acknowledged that Google, Broadcom’s largest AI customer, will likely use more than one chip supplier going forward.