Technology stocks were heavily attacked on Thursday after Broadcom’s latest outlook did not satisfy investors who were banking on an even faster acceleration in demand linked to artificial intelligence.
Broadcom shares fell 15%, putting the semiconductor giant on track to become the worst-performing stock in the S&P 500.
The downturn quickly spread across the chip sector, causing losses at companies that have been among the biggest beneficiaries of the AI investment boom.
The selloff reflects growing concerns that expectations of AI-led growth may have outpaced reality after a powerful rally in semiconductor stocks in recent months.
Memory chip maker Micron Technology MU fell 9.4%, while Marvell Technology, a specialist in networking solutions and chip design, fell more than 6%.
Flash memory specialist Sandisk lost around 5%, and server maker Super Micro Computer fell around 4%.
Elsewhere, Intel fell more than 4% and Advanced Micro Devices lost more than 7% as investors turned away from AI-related stocks that had gained strongly.
High expectations difficult to meet
The market reaction seemed less to do with Broadcom’s actual performance than to the gap between expectations and reality.
Guidance for Broadcom’s fiscal third quarter appeared higher than Wall Street consensus, but analysts said investors were hoping for a much more ambitious outlook after months of upward revisions linked to demand for AI.
Gil Luria, an analyst at DA Davidson, said the company’s guidance had not impressed because many investors had already priced in more aggressive acceleration of AI-related revenues.
One area that particularly disappointed investors was Broadcom’s forecast for AI-related semiconductor revenue, which came in about $400 million below market expectations.
Luria said the guidance likely reflected conservative forecasts and a timing of shipments rather than a deterioration in demand.
“It was difficult to meet the high expectations for Broadcom’s F2Q results,” he said.
Susquehanna analysts cited another factor explaining the more moderate outlook.
Broadcom has confirmed that it will transition to selling only chip solutions to customers rather than providing larger rack systems.
The brokerage said it had already anticipated that Broadcom would stop selling racks to Anthropic in fiscal 2026 and argued that this change largely explains the more moderate AI guidance.
Despite the outlook, Susquehanna said underlying demand remained exceptionally strong, noting that AI semiconductor orders exceeded $30 billion during the quarter.
Valuations in the viewfinder
Some analysts suggested the selloff was a natural consequence of soaring valuations in the semiconductor sector.
John Vinh, an equity analyst at KeyBanc Capital Markets, said investors were increasingly wondering whether profit growth could continue to keep pace with the rapid rise in prices.
“These stocks have all had very strong runs,” Vinh told CNBC.
He noted that repeated upward revisions to earnings forecasts, particularly around AI-related demand, had sharply raised expectations across the industry.
Broadcom’s sharp reversal may therefore represent a broader reset of investor sentiment rather than a reckoning on the company’s fundamentals.
Adding to investor caution, Vinh noted that Broadcom has been losing market share at Google, one of its largest customers, as the company increasingly diversifies its semiconductor supply chain.
Still, he maintained a positive long-term outlook on the stock.
“The short-term pullback makes sense,” he said.
Memory chip cycle could be nearing a peak
Beyond Broadcom, investors are increasingly focusing on another question weighing on the semiconductor sector: how much longer can memory chip prices continue to rise.
For much of the past year, Wall Street estimated that the supply-demand imbalance supporting memory prices would persist at least until 2027.
HSBC strategists warned that slowing AI spending and falling chip prices were among their biggest concerns for the sector.
Karl Ackerman, analyst at Raymond James, believes the peak could come sooner.
“We expect average selling prices for DRAM and NAND to peak in mid-2026,” Ackerman wrote in a research note.
He predicts that DRAM and NAND flash prices will begin to see sequential quarterly declines starting early next year.
Several factors could contribute to this change.
On the supply side, Chinese memory manufacturers ChangXin Memory Technologies and Yangtze Memory Technologies are increasing their production capacity, which could add new offerings to the market.
On the demand side, soaring memory prices are starting to impact other chip-dependent industries.
Smartphone makers, for example, are facing higher component costs, with Counterpoint Research forecasting a roughly 14% decline in global smartphone shipments this year.
The problem has become significant enough that nine U.S. trade associations sent a joint letter this week to Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, calling for action to address persistent shortages of memory chips.
“While recent developments in AI offer the promise of generational technological advances and are important to America’s technological leadership, we must also ensure that other key industries are not negatively affected,” the letter said.
While a spike in memory prices would traditionally signal the start of a new downturn in the industry’s boom-bust cycle, Ackerman believes the impact could be less severe this time around.
Long-term supply agreements between chipmakers and customers could help cushion a sharp adjustment, leading the analyst to maintain an “Outperform” recommendation on Micron despite growing concerns about the cycle.
For investors, however, Thursday’s selloff was a reminder that even strong AI-related demand may not be enough to support semiconductor stocks when expectations become too difficult to exceed.
