Broadcom's quarterly results and guidance sailed past Wall Street estimates. It didn't matter.
The chipmaker's shares plummeted 11% on Friday, on pace for their worst day since January, as investors ran for the exits on the artificial intelligence trade. Oracle dropped 4% a day after plunging 10% following its earnings report.
AI has been the driver for the stock market and the broader economy this year, so any negative sentiment has potentially far-reaching consequences. The Nasdaq on Friday fell about 1.4%, and the S&P 500 declined declined by nearly 1%.
The companies getting hit the hardest are the ones most closely tied to AI infrastructure, which has been booming as hyperscalers build out their data centers to try and meet what they describe as insatiable demand for compute-intensive AI services. Broadcom makes custom chips for many of the the largest tech companies, and saw its market cap about double each of the past two years before rallying again in 2025.
"This stock is up 75-80% year to date. You're seeing a little bit of a pullback," Vijay Rakesh, an analyst at Mizuho, told CNBC's "Squawk on the Street" on Friday. "We would be buyers on this pullback."
Mizuho raised its price target on the stock to $450 from $435. It was trading below $364 as of Friday afternoon.
"This is still where the growth is," Rakesh said. "They are still the big supplier to Google on their entire hardware stack, to Meta, to Anthropic and even OpenAI coming down the road."
Broadcom reported revenue growth of 28% during the quarter, largely due to a 74% increase in AI chip sales, to a total of $18.02 billion, topping the $17.49 billion average analyst estimate, according to LSEG. Adjusted earnings per share of $1.95 adjusted topped the $1.86 average estimate.
CEO Hock Tan said Broadcom expects AI chip sales this quarter to double from a year earlier to $8.2 billion, both from custom AI chips as well as semiconductors for AI networking.
One concern among investors is that margins are coming down, at least in the short term, due to higher upfront costs. CFO Kirsten Spears said on the earnings call that "gross margins will be lower" for some of Broadcom's AI chip systems because the company will have to buy more parts to produce the server racks.
Broadcom also said it had a $73 billion backlog of AI orders over the next 18 months. Part of that is from $21 billion of orders from Anthropic, which the company revealed as a key customer on Thursday.
While OpenAI has been a highly touted customer following a multibillion-dollar agreement announced in October, Tan doused some hope for the deal, telling investors late Thursday that, "We do not expect much in '26."
Bernstein analyst Stacy Rasgon said in a note on Friday that "AI angst" was driving Broadcom's shares lower.
"Frankly we aren't sure what else one could desire as the company's AI story continues to not only overdeliver but is doing it at an accelerating rate," Rasgon, who recommends buying the stock and raised his price target, wrote in the note.
Oracle has been facing more extreme skepticism. The stock is now down more than 40% from its record reached in September. The company beat on earnings but missed on revenue in its report on Wednesday, and investors were disappointed they didn't get more detail on how Oracle will finance its massive buildout that so far has required mounds of debt.
CoreWeave, which is investing in data centers to offer cloud-based AI services, sank 9% on Friday and has lost more than half its value since peaking in June.