What Happened?
Shares of fabless chip and software maker Broadcom (NASDAQ:AVGO) fell 6.3% in the afternoon session as the major indices tumbled after the Trump administration confirmed that the planned 25% tariffs on imports from Canada and Mexico, two of the largest trading partners of the United States, would proceed as planned. The news added to the market's growing unease, which had been building since the start of 2025. For Wall Street analysts, investors, and businesses, the announcement underscored the urgent need to plan ahead and factor the potential downside of the tariffs into their financial forecasts. Key concerns included rising production costs, which are often passed on to consumers, and the risk of inflation, further heightening economic uncertainty.
The shares closed the day at $187.44, down 6.1% from previous close.
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What The Market Is Telling Us
Broadcom’s shares are very volatile and have had 26 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 biggest move we wrote about over the last year was 9 months ago when the stock gained 15.1% on the news that the company reported a "beat-and-raise" quarter. Broadcom exceeded analysts' revenue expectations and shrank its inventory levels. The revenue beat was driven by strong AI demand and VMware, a company it acquired in November 2023. To provide some color on the AI front, AI revenues in the quarter clocked in at $3.1B, up 280% y/y, driven by strong Google TPU demand and AI networking revenue. This strong AI performance helped to offset cyclical weakness in semiconductor revenue from enterprises and telcos. The software segment also gained from the growing contribution from VMware. In Q2’2024, VMware drove $2.7B in revenue (up from $2.1B in the previous quarter).
Looking ahead, AI revenue in FY24 is expected to exceed $11B and grow over 150% y/y. For the full year, revenue guidance ($50.5 billion at the midpoint) and EBITDA guidance (approximately 61 percent of projected revenue) topped Wall Street's estimates. Similar to Nvidia, the company announced a 10-for-1 stock split. Zooming out, we think this was a great quarter, showing it's staying on track.
Broadcom is down 18.9% since the beginning of the year, and at $188.14 per share, it is trading 24.7% below its 52-week high of $250 from December 2024. Investors who bought $1,000 worth of Broadcom’s shares 5 years ago would now be looking at an investment worth $6,860.
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