Broadcom Inc. is expected to announce excellent earnings on Wednesday. However, recent stock trends suggest that even beating high expectations might not stop the company’s months-long stock decline.
The chipmaker’s shares have dropped about 23% since their record high in December. This is much worse than the S&P 500 Index’s performance. Investors are selling off large tech companies because they worry about how long the massive spending on artificial intelligence (AI) will last. Broadcom, the seventh most valuable company in the S&P 500 at $1.5 trillion, makes chips for AI giants like Alphabet Inc., so it benefits from this spending.
While future concerns about AI spending might be valid, Broadcom looks strong right now. Experts predict a 27% increase in first-quarter adjusted earnings per share to $2.03 compared to last year. They also expect revenue to jump 29% to around $19.3 billion, with AI-related sales nearly doubling to about $8.2 billion. Many on Wall Street wouldn’t be surprised if the company also offers a positive forecast. “Broadcom will have great things to say,” said Paul Meeks, head of tech research at Freedom Capital Markets. “But it may not matter.”
Consider what happened to Nvidia Corp. shares last week after their earnings report. The chip giant exceeded Wall Street’s predictions and increased its future guidance. This was due to strong demand for its products and huge planned spending by large cloud providers. Yet, the stock fell 9.4% over the next two trading sessions, its biggest two-day drop since April.
Broadcom’s shares also took a hit after its last earnings report in December, falling over 11% for its worst performance in almost a year. The problem was that its $73 billion backlog of AI product orders over the next six quarters didn’t meet expectations. Investors will naturally want an update on this, as well as news on the tensor processing unit (TPU) chips it builds for Google. Google’s orders are expected to increase in the second half of the year. A deal with OpenAI should also boost growth into 2027.
