Broadcom CEO unnerves biggest AI backers in rattling pivot

Broadcom (AVGO) just posted the kind of quarter most chipmakers can only dream about. Record revenue, AI sales up triple digits, and a growing roster of marquee customers.

Then the stock fell.

Shares of Broadcom dropped 12.59% on June 4 to close at $418.91, the steepest one-day fall in over a year.

The slide didn’t stop there. By the close on June 9, the stock sat at $396.60, down 18.64% across five trading days.

The stock’s price drop may be tied to something CEO Hock Tan said.

Why Broadcom stock kept sliding after a record AI quarter

Investors expected Broadcom to raise its AI forecast, but it didn’t.

Instead of lifting the company’s target of more than $100 billion in AI semiconductor revenue by fiscal 2027, Tan reaffirmed it, according to CNBC.

And this made the market uncomfortable.

Then the bigger blow followed.

We are only chips.

Tan said Broadcom will now sell “chips only,” stepping back from the fully integrated AI systems it had previously promised customers, according to the earnings call transcript on Investing.com.

That move dampens hopes for the higher-margin business that investors were counting on.

What Broadcom does and how its AI chip business got this big

Most people know Broadcom as a chip company, and that label fits.

It co-designs custom AI accelerators, called XPUs, with individual cloud giants, then sells the networking silicon that links thousands of those chips inside a data center.

That business has exploded. AI semiconductor revenue jumped 143% year over year to $10.8 billion last quarter, while total revenue hit a record $22.19 billion, up 48%, Bloomberg reported.

That run-up made the fall harder.

AVGO had rallied for weeks into earnings, which pushed the bar for success well above the company’s official guidance.

The “chips only” shift that worried Broadcom’s AI backers

Selling chips only means giving up the servers and full systems that carry fatter margins than chips alone do, and the pressure is already showing.

Broadcom guided third-quarter gross margin down to 74% from 77%, because lower-margin AI chips now make up a bigger slice of revenue than its software business, Barron’s reported.

Related: HSBC massively revamps Broadcom’s stock price target

The shift lands hardest on the AI labs that buy Broadcom’s custom silicon.

Tan named Anthropic, Google, Meta, and OpenAI among six core custom-chip customers, all of which design their own silicon through partners to control cost and supply.

Why Google leaning on other suppliers matters for AVGO

Hok Tan acknowledged that Google, Broadcom’s largest AI customer, will likely use more than one chip supplier going forward.

That raises the possibility of Broadcom losing share.

More AI Chip Stocks:

KeyBanc’s John Vinh kept his overweight rating but flagged the risk of Broadcom ceding Google work to MediaTek-based silicon. He named Nvidia as his preferred chip stock, according to CNBC.

Other AI chipmakers fell with it. AMD, Micron, and Marvell all slid.

But this was just a sign that investors were cooling on a few overpriced stocks, not losing faith in AI.

What needs to happen for Broadcom stock to recover

Tan raises the $100 billion AI target as fiscal 2027 draws closer, instead of just reaffirming it.

Gross margins stabilize as AI volume scales, easing the chips-versus-software mix concern.

Google keeps the bulk of its custom-chip orders with Broadcom rather than rivals.

Cloud spending holds up, and Alphabet alone has guided to about $190 billion in capital expenditure for 2026, 24/7 Wall St reported.

Broadcom stock versus the S&P 500

Even after the drop, Broadcom has far outpaced the broader market.

AVGO returned about 61.91% over the past year, against 23.42% for the S&P 500, according to Yahoo Finance data.

But that outperformance also carries some risk.

At about 66 times earnings, the stock leaves little room for a stumble, which is why a forecast that failed to exceed expectations triggered such a sharp repricing.

What Broadcom’s pivot means for investors right now

The selloff reflects a reset of stretched expectations, not a loss of faith in AI.

Broadcom’s order book and customer list stay among the strongest in the industry.

Still, the “chips only” call and the unchanged target tell investors that margin expansion may be slowing.

For anyone weighing the stock, the practical question is whether $56 billion in fiscal 2026 AI chip sales, just short of the $57.6 billion Wall Street wanted, still justifies the premium.

Related: Susquehanna resets Broadcom stock target ahead of earnings

This story was originally published by TheStreet on Jun 10, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.