$300 Billion Wiped Out: Why Broadcom’s "Flawless" Earnings Failed to Halt Wall Street’s Three-Day Slide

TradingKey - Chip giant Broadcom is experiencing its most severe market sell-off since March 2020, with shares tumbling 18% in three days after its earnings report.

The post-earnings slide saw more than $300 billion in market capitalization evaporate, a sum roughly equivalent to the current market value of its chip competitor, AMD.

Dow Jones Market Data shows Broadcom's market capitalization, now $1.605 trillion, has been overtaken by Meta ($1.632 trillion), stripping it of its rank as the sixth-largest U.S. company.

Even with the recent decline, Broadcom's stock is still up more than 45% year-to-date. While the company's shares have experienced over 5% swings 25 times in the past year, this three-day consecutive plunge remains unusual.

This drastic volatility likely stems from investors re-evaluating the fundamental question of whether "high growth can justify high valuations" amidst escalating concerns about an AI bubble.

In calmer market periods, Broadcom's strong performance might have quelled doubts. However, as the AI investment frenzy intensifies, any hint of performance weakness risks being amplified by the market.

Why Did Strong Earnings Fail to Prevent the Sell-off?

Broadcom reported robust fourth-quarter revenue of $18.01 billion (+28% year-over-year) and a net profit of $9.71 billion (+39% year-over-year). Furthermore, its AI chip revenue surged by 74%, with an order backlog reaching $73 billion.

Yet, these impressive figures couldn't overshadow a core concern: management warned of a 100-basis-point sequential decline in gross margins, sparking market skepticism about the AI business's profitability.

Read more: "Broadcom's AI Revenue Soars 70% But Shares Fall on Margin Concerns and Client In-House Moves"

Broadcom CEO Hock Tan stated that artificial intelligence demand for 2026 is "difficult to predict," shattering prior optimistic market expectations for the stock.

Notably, Broadcom's capital expenditure over the past 12 months was only $623 million, significantly lower than the tens of billions invested by Nvidia and Oracle. The company also failed to disclose its AI infrastructure investment plans. Despite securing multi-billion dollar orders with Anthropic and OpenAI, the market remains skeptical about its ability to deliver on capacity.

TD Cowen analyst Joshua Buchalter pointed out that while investors harbored high expectations for Broadcom's deepening collaboration with OpenAI, the earnings report failed to clarify how this business would translate into revenue or specific timelines.

Adding to market disappointment, Broadcom announced a $1 billion custom chip delivery to an unnamed fifth client, expected by the end of next year. This figure fell significantly short of Wall Street's expectations for the scale of its OpenAI partnership.

Buchalter explained that such uncertainty unnerves investors; the market demands a clear roadmap, not vague promises.

AI Supply Chain Takes a Hit

With Broadcom's stock plummeting over 17% in three days, two core pillars of the AI supply chain—the "Google ecosystem" and the "OpenAI ecosystem"—have simultaneously suffered significant blows.

As a key player, Broadcom's earnings, while hitting a record high, saw AI business revenue forecasts fall short of Wall Street's exceptionally high expectations. Consequently, the market is beginning to question the return cycle on AI infrastructure investments.

Concurrently, core "OpenAI ecosystem" company Oracle faced revelations post-earnings that the completion date for its data center being built for ChatGPT owner OpenAI might be delayed from 2027 to 2028. This news has shaken market confidence in the pace of AI infrastructure development.

With both the "Google ecosystem" and "OpenAI ecosystem" facing a crisis of confidence, the entire AI supply chain's valuation logic is undergoing reassessment. Investors are now pondering: have we been overly optimistic in overestimating the speed and scale of AI adoption?

Why Is a 'Perfect 100' No Longer Enough? Wall Street Demands a '200'

Concurrently, a deeper question is permeating the market: why have Nvidia, Oracle, and CoreWeave, among other AI concept stocks, experienced sell-offs even after reporting strong earnings? Seemingly, even exceeding expectations in financial figures is no longer enough to satisfy Wall Street.

Perhaps the answer lies in the fact that Wall Street's expectations for AI concept stocks have escalated from a "perfect score of 100" to "a mandatory score of 200."When investors begin to question the sustainability of orders and the longevity of industry prosperity, even the strongest quarterly results struggle to calm market anxieties.

Broadcom's $300 billion market cap evaporation in three days underscores that even above-expectation performance fails to soothe investors' "fear of heights" regarding valuations.

"This isn't a repudiation of Broadcom, but rather a repricing of the entire AI investment thesis," confessed one hedge fund manager. "The market is shifting from 'believing everything' to 'needing evidence.' Investors are no longer content with concepts and expectations; they demand to see tangible profitability and a clear path to returns."