What Happened?
Shares of fabless chip and software maker Broadcom (NASDAQ: AVGO) fell 5.4% in the afternoon session after it continued a multi-day slide as management warned that its fast-growing artificial intelligence (AI) business would negatively impact gross profit margins.
The drop extended a steep decline that began after the company's recent earnings update. During the update, management indicated that increasing sales of custom AI processors, which have lower margins, would reduce the company's overall gross margins in the upcoming quarter.
This guidance alarmed investors, who feared that the profitable AI surge might not be as lucrative as Broadcom's traditional software business. The continued selling pressure capped a multi-day slide that was reportedly the stock's worst in several years.
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What Is The Market Telling Us
Broadcom’s shares are very volatile and have had 25 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 5 days ago when the stock dropped 10.7% as investors locked in some profits amid margin anxiety as the company reported a top-and-bottom-line earnings beat.
While revenue jumped 28% and AI sales surged 74%, management guided for gross margins to fall by ~100 basis points sequentially. This fueled a bearish view: the company's booming AI hardware business is structurally less profitable than its legacy software segments, causing "margin dilution" as it grows. The sell-off was deepened by Oracle's contagion.
Earlier in the week, Oracle spooked the market with massive capital expenditure hikes, signaling that AI infrastructure is becoming exorbitantly expensive to build. When Broadcom CEO Hock Tan added that 2026 AI demand was "hard to pinpoint," it shattered the perfection priced into the stock. After a 75% rally during the year, investors seized this moment to lock in profits, fearing that AI growth is becoming costly and opaque.
Broadcom is up 39.3% since the beginning of the year, but at $323.13 per share, it is still trading 21.8% below its 52-week high of $412.97 from December 2025. Investors who bought $1,000 worth of Broadcom’s shares 5 years ago would now be looking at an investment worth $7,586.
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