Why Broadcom Stock Sank 5.6% Today
Key Points
Broadcom’s pullback reflects broader weakness in AI-related stocks as sentiment cools.
The company's margins are lower for its AI business.
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Shares of Broadcom (NASDAQ: AVGO) fell on Monday, finishing the day down 5.6%. The slide came as the S&P 500 and Nasdaq Composite lost 0.2% and 0.6%, respectively.
Broadcom stock fell today, along with much of the artificial intelligence (AI) market, as investors continue to rotate out of the sector following earnings from both Broadcom itself and fellow tech giant Oracle.
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Record earnings weren't enough to calm market nerves
Despite reporting record sales and net income as AI sales soar, investors were disappointed by the impact its AI is having on margins. During the company's earnings call, CEO Hock Tan said that its AI business has lower gross margins than its other segments, and as AI sales become a larger part of its total revenue mix, overall margins will be negatively impacted moving forward.
Image source: Getty Images.
Given Broadcom's headline numbers, these issues would mostly be overlooked during a less fraught time in the market, but as anxiety grows over an AI bubble, investors are looking for any signs of weakness. Especially given that Broadcom's earnings were released just a day after Oracle's own report, showing its AI-related capital expenditures are ballooning.
Broadcom needs demand for AI to remain white hot. I'm not confident enough that it will to recommend Broadcom stock at this price.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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