Why Broadcom Stock Is Sinking Today

Key Points

• A new report from MIT is raising questions about how much value generative AI is actually creating for businesses.

• Inflation concerns are also pressuring Broadcom and other tech stocks today.

• 10 stocks we like better than Broadcom ›

Broadcom (NASDAQ: AVGO) stock is slipping in Wednesday's trading. The company's share price had fallen 2.4% as of 1:15 p.m. ET today amid the backdrop of a 0.6% decline for the S&P 500 and a 1.1% decline for the Nasdaq Composite. The stock had been down as much as 4.4% shortly after the market opened.

Broadcom is under pressure today following new research from the Massachusetts Institute of Technology (MIT) suggesting that most businesses are getting little or no real benefit from using generative artificial intelligence (AI). The company's stock is also seeing sell-offs in conjunction with some bearish inflation indicators.

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An MIT report is causing sell-offs for Broadcom stock

Yesterday, MIT published research that showed that 95% of businesses that it looked at were getting no returns on their investments in generative AI. Broadcom's valuation has seen huge gains in conjunction with AI-related demand for its connectivity chips and related hardware and software services, and its share price is still up roughly 72% over the last year even with some recent pullbacks.

MIT's report has raised concerns that an AI valuation bubble could be about to pop, and the dynamic is having a negative effect on most big names in the space.

Inflation fears are also weighing on Broadcom

With Home Depot publishing its second-quarter results yesterday and Target publishing its second-quarter results this morning, investors have gotten new indicators that suggest stronger inflation could be on the horizon. Home Depot is raising prices due to higher costs from tariffs, and Target said it was facing tariff-related pressures and depressed consumer spending.

The updates from the retailers follow new data last week that showed much hotter-than-expected inflation for producers and wholesalers in July. If inflation accelerates, the Federal Reserve could take a more cautious stance on interest rate cuts -- which would be a bearish development for Broadcom and other growth stocks.

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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.