The iShares Semiconductor ETF fell 5.3% in morning trading after Broadcom’s post-earnings outlook for AI chips failed to meet market expectations. Broadcom reported better-than-expected fiscal second-quarter revenue and earnings per share, but projected $16 billion in AI chip sales for its third quarter - below analyst estimates of $17.2 billion. Management also opted not to raise its full-year AI semiconductor sales guidance, and that combination prompted a sharp sell-off that extended across the chip sector.
Pressure from Broadcom rippled through the holdings of the semiconductor ETF, with nearly every major component moving lower. Micron, AMD, Arm Holdings, Intel, and Qualcomm all fell in sympathy as investors rotated out of the high-flying semiconductor trade. Analysts at Keybanc Capital Markets observed that "these stocks have all had very strong runs," highlighting that repeated upward revisions tied to AI expectations had already pushed market assumptions higher.
Broadcom compounded investor concern by acknowledging that its largest customer, Google, has begun diversifying away from Broadcom’s custom chips. That admission raised customer-concentration questions across the sector and added to the downward momentum.
The weakness in chips was reflected across major indexes. The NASDAQ declined 1.4% and the S&P 500 fell 0.9% as tech-led losses weighed on growth-oriented benchmarks. The Dow Jones was more resilient, down 0.3%, consistent with a rotation toward less tech-heavy parts of the market.
The selling extended to overseas markets overnight. Asian semiconductor names, including major South Korean and Japanese chipmakers, dropped sharply as investors shifted into more defensive sectors such as healthcare and financials. Taken together, the combination of a high-profile earnings disappointment from one of the sector's most-watched companies, stretched valuations after SOXX's strong year-to-date run, and a global wave of profit-taking created the conditions for today's notable pullback.
The central question for market participants now is whether this episode represents a temporary reset of AI chip expectations or the start of a broader reversal in the semiconductor supercycle. At present, the available public information points to a confluence of an earnings-related forecast miss, customer-concentration concerns, and an extended sector run as the proximate drivers of the move.
Market context and immediate effects
- Broadcom beat on fiscal Q2 revenue and EPS but its Q3 AI chip sales projection of $16 billion missed analyst consensus of $17.2 billion.
- Management did not raise full-year AI semiconductor sales guidance.
- Broadcom noted that Google has begun diversifying away from its custom chips, highlighting customer-concentration risk.