Why Broadcom Stock Sank Today

Key Points

• Broadcom stock sold off today as investors got some bad news about Stargate Project's $500 billion AI infrastructure build-out.

• Stargate has reportedly gotten off to a significantly slower-than-expected start.

• 10 stocks we like better than Broadcom ›

Broadcom (NASDAQ: AVGO) stock closed out Tuesday's trading in the red. The tech company's share price fell 3.3% in a session that saw the S&P 500 battle back to be flat with yesterday's level and the Nasdaq Composite dip 0.4%.

Stocks opened lower this morning as tech-sector valuation concerns weighed on major indexes, but there was a significant recovery in the afternoon following news that the U.S. and the Philippines have reached a trade agreement. In addition to some volatility for the broader market, Broadcom stock was pushed lower following news that a large artificial intelligence (AI) infrastructure build-out wasn't coming together as quickly as anticipated.

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Broadcom stock fell as investors got bad news about Stargate

The Wall Street Journal published a report today stating that the Stargate Project AI infrastructure company funded by Softbank, OpenAI, Oracle, and MGX was getting off to a slow start. The partners have pledged $500 billion in funding to build data centers and other AI infrastructure over the next four years, but things are moving slower than anticipated -- and the scope of near-term expansion plans has been narrowed.

Broadcom's networking and connectivity chips and other hardware help support advanced AI processors from Nvidia and other providers, and it's been a huge beneficiary of the AI boom. Even with today's pullback, the company's share price is up 67.5% over the last three months and 786% over the last five years.

What's next for Broadcom?

If Stargate Project's scaling takes longer than expected to materialize, it could mean slower-than-expected growth for Broadcom. The company's positions in connectivity hardware and software services remain strong, and its long-term outlook is promising, but Stargate represents a significant source of potential sales for the business. So long as the tech partners move forward with the previously announced plans, some delays shouldn't hurt Broadcom too much -- but the situation is worth keeping an eye on.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.