Broadcom, the semiconductor leader, plunged 12.56% in overnight trading on Wall Street. Although its quarterly results beat market expectations, investors were disappointed by the company’s outlook for future artificial intelligence (AI) semiconductor revenue. The trend is becoming clearer: strong earnings do not necessarily translate into a rising stock price.
◆ Broadcom falls 12% despite strong earnings
Broadcom released its quarterly earnings after the market closed the previous day. Both revenue and profit exceeded Wall Street forecasts. Even so, the stock fell 12.56% during regular trading. Analysts said the selling was triggered by the company’s failure to meet investors’ expectations for future AI semiconductor sales.
The shock from the decline spread to memory chipmakers. Micron Technology fell 7.63%, while SanDisk and Western Digital dropped 3.89% and 3.13%, respectively. Chip design company Arm also slid 4.47%.
The weakness, however, did not spread across the entire sector.
◆ Semiconductor stocks diverge by company
On the same day, Nvidia rose 1.97%. Marvell advanced 4.89%, foundry giant TSMC climbed 1.85%, and ASML, a semiconductor equipment maker, gained nearly 2%. Stocks competing with Broadcom or supporting the AI semiconductor supply chain actually strengthened.
The divergence by company reveals how the market is judging the situation. This decline was less about a slowdown in the semiconductor industry as a whole and more about expectations that had become overly concentrated in a single stock, Broadcom, being reset. Investors are beginning to separate industry growth potential from the valuation of individual companies.
The indices reflected that view. The Philadelphia Semiconductor Index fell 2.15%, and the Nasdaq slipped 0.09%. In contrast, the S&P 500 and the Dow Jones Industrial Average rose 0.41% and 1.73%, respectively. Overall, the market closed higher.
◆ Capital moves into healthcare and finance
Money leaving semiconductors shifted into defensive sectors. Healthcare posted the strongest gain at 3.16%, followed by financials, communications, and real estate, all up in the 2% range. With the exception of consumer staples and information technology, every sector rose.
Pharmaceutical stocks stood out. UnitedHealth, which was upgraded by a major investment bank, surged 5.16%, while Eli Lilly and Merck rose 4.31% and 4.85%, respectively. Among big tech names, Alphabet led the way with a 3.68% gain. Amazon rose 1.51%, while Tesla fell 1.24%.
External factors also supported risk appetite. A ceasefire agreement between Israel and Lebanon sent West Texas Intermediate crude prices down more than 3%. The weaker oil price eased inflation concerns and helped push market yields lower.
The yield on the 10-year U.S. Treasury fell 2.1 basis points to 4.47%, while the 2-year yield, which is more sensitive to policy-rate expectations, dropped 3.8 basis points to 4.04%. Gold, a safe-haven asset, rose nearly 1% to finish trading around $4,505 per ounce.
The key issue in this selloff is not earnings, but expectations. The episode showed that even companies with rapidly growing AI revenue can see their stock prices shaken if they fail to meet the market’s elevated bar. In other words, growth speed and the expectations already embedded in stock prices are not the same thing.
The movement of capital from semiconductors into healthcare and financials suggests a shift in investors’ risk perception. As money that had been concentrated in AI begins to spread out, the market is once again weighing the gap between growth expectations and actual results.