Shares of Broadcom fell nearly 4% in premarket trading on June 6, after the company’s third-quarter revenue forecast did not meet investors’ expectations.

Broadcom projected third-quarter revenue of about US$15.80 billion, slightly above analysts’ average estimate of US$15.71 billion.

However, high expectations may have influenced the negative market reaction.

Broadcom is a major supplier of semiconductors to Apple and Samsung and plays a crucial role in AI data centers by providing advanced networking components for generative AI technology.

The company also designs custom AI processors for cloud providers, competing with Nvidia’s off-the-shelf chips.

Despite growth in AI, Broadcom faces challenges due to US export restrictions on advanced technology to China.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ The “AI premium” creates increasingly difficult investor expectations

Broadcom’s case illustrates how AI-focused chip companies face heightened market expectations that become progressively harder to meet despite strong performance.

Despite forecasting third-quarter revenue of $15.80 billion, exceeding analysts’ average estimate of $15.71 billion, Broadcom’s shares still fell nearly 4% as investors expected even more impressive figures 1.

This phenomenon follows Broadcom’s dramatic 85.47% stock price increase over the past 12 months, creating elevated expectations that even strong forecasts struggle to satisfy 2.

The company’s projected AI revenue growth is substantial, expected to reach $8-9 billion in FY2024, with 77% growth in AI sales to $4.1 billion already reported in Q1 2025. Yet, investors continue to demand even more aggressive growth 3.

Broadcom’s forward price-to-earnings ratio of 35.36 (compared to Marvell’s 20.63) reflects this AI premium, suggesting investors have already priced in extraordinary growth that becomes increasingly difficult to exceed 4.

2️⃣ The AI chip market is fragmenting into specialized domains

The semiconductor industry is evolving from Nvidia’s early dominance into a more specialized ecosystem where companies focus on different aspects of the AI infrastructure stack.

While Nvidia maintains approximately 70% of AI semiconductor sales, companies like Broadcom and Marvell are carving out valuable niches in custom silicon and data movement respectively 5.

Broadcom has strategically positioned itself by designing custom AI processors for large cloud providers that compete with Nvidia’s off-the-shelf chips, and by collaborating with major players like Alphabet on their TPU AI ASIC program 5.

The overall semiconductor market for AI is projected to reach $119.4 billion by 2027, with the inference chip segment alone expected to grow to nearly $155 billion by 2030, creating substantial opportunity for specialized providers 6, 5.

This market segmentation explains why Marvell’s recent forecast above Wall Street estimates boosted its stock while Broadcom’s similar performance didn’t—investors are increasingly distinguishing between different AI chip specializations rather than viewing the sector monolithically [original article].

3️⃣ Geopolitical tensions create persistent volatility for semiconductor companies

Broadcom’s stock movement reflects the semiconductor industry’s heightened sensitivity to international trade policies, particularly regarding U.S.-China relations.

The company has approximately 20% revenue exposure to China, making it vulnerable to tariff changes and export restrictions as Washington attempts to limit Beijing’s access to advanced technology 3.

This exposure led Barclays to reduce Broadcom’s price target due to escalating trade tensions, highlighting how geopolitical factors can directly impact financial projections despite strong operational performance 3.

Recent market movements demonstrate this volatility. Broadcom shares increased 8% amid tariff-related market fluctuations when a temporary agreement between the U.S. and China fueled optimism 7, 8.

The pattern of rapid stock movements in response to trade policy developments rather than fundamental business changes has become a defining characteristic of semiconductor stocks, creating additional uncertainty for investors trying to value companies based on their AI technology advantages 8.

Recent Broadcom developments

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