Why Broadcom Stock Is Slipping Today

The Motley Fool
Updated
Mitrade
coverImg
Source: Shutterstock

After a two-session surge driven by the emergence of the chipmaker's artificial intelligence (AI) business in the fiscal fourth-quarter earnings report it delivered on Thursday, Broadcom (NASDAQ: AVGO) was pulling back Tuesday morning alongside the broader semiconductor sector.

While there wasn't any company-specific news about Broadcom, its sell-off was indicative of a larger trend. As of 11:59 a.m. ET, the stock was down 4.4%.

A stock chart going down

Image source: Getty Images.

Did Broadcom's rally go too far?

Investors seem to be debating the fair value of this stock after its post-earnings jump last week. Broadcom's results were mostly in line with analysts' consensus estimates, as was its guidance, but investors were particularly impressed with its AI-related growth. The company said its AI revenue jumped 220% in fiscal 2024 (which ended Nov. 3), and management predicted that AI revenue would grow by 65% in fiscal 2025's first quarter. It based that growth forecast on the high demand for its Jericho 3 Ethernet switches, which are designed for AI networks.

Despite investors' enthusiasm for Broadcom's AI business, a broader sense of skepticism seemed to pervade the market Tuesday. Its chip stock peers Nvidia, Arm, and Marvell were all down as well.

There wasn't a clear trigger for the sell-off, but investors seem to be worrying again that demand for AI products may not be as strong as current stock prices imply. Nvidia stock is now down four straight sessions in a row amid signs that growth in AI spending is likely to slow next year.

What it means for Broadcom

High expectations are now baked into Broadcom's stock price. It trades at a price-to-earnings ratio of nearly 50 based on adjusted earnings, and its growth rate will moderate as it laps its acquisition of VMware, which closed in November 2023.

Still, with AI-related tailwinds building for Broadcom, the stock looks fairly valued. It should be a winner over the long term.

* The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

goTop
quote
Do you find this article useful?
Related Articles
placeholder
BitMine In, Robinhood Out: What’s Driving Cathie Wood’s Latest Bets at ARK Invest?According to newly released filings from Ark Invest, it bought millions of dollars’ worth of shares in BitMine Immersion on Monday.
Author  TradingKey
7 hours ago
According to newly released filings from Ark Invest, it bought millions of dollars’ worth of shares in BitMine Immersion on Monday.
placeholder
Asia-Pacific stocks rose and the U.S. dollar weakenedAsia-Pacific shares pushed higher on Tuesday on hopes the U.S. Federal Reserve will cut interest rates as soon as next week.
Author  Cryptopolitan
10 hours ago
Asia-Pacific shares pushed higher on Tuesday on hopes the U.S. Federal Reserve will cut interest rates as soon as next week.
placeholder
Boeing has become the centerpiece of Trump’s trade approach.Boeing has become the unexpected centerpiece of Donald Trump’s entire global trade approach.
Author  Cryptopolitan
10 hours ago
Boeing has become the unexpected centerpiece of Donald Trump’s entire global trade approach.
placeholder
China doubles down on practical AI as America spends billions and burns energyAmerica is throwing billions of dollars and burning through massive energy reserves in an arms race to dominate AI before China gets there first.
Author  Cryptopolitan
Sep 04, Thu
America is throwing billions of dollars and burning through massive energy reserves in an arms race to dominate AI before China gets there first.
placeholder
Dow Jones futures remain steady ahead of key US economic dataDow Jones futures remain steady near 45,300 during European hours on Thursday, ahead of the opening of the United States (US) regular markets.
Author  FXStreet
Sep 04, Thu
Dow Jones futures remain steady near 45,300 during European hours on Thursday, ahead of the opening of the United States (US) regular markets.