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Still, multiple analysts said AI's potential remains intact and stocks benefiting from the technology, especially chipmakers, will see big gains in the year as the industry spends hundreds of billions of dollars to bring more capacity online.
Broadcom, whose services are key for companies looking to develop custom AI processors, has won big contracts this year, including $21 billion from Anthropic in the past two quarters for Google's custom Ironwood chips. Despite Friday's decline, the company's stock has risen more than 57% since the beginning of the year.
“At this point, spending intentions still look very high for many people, so it's too early to hit the panic button,” said Ben Reitzes, an analyst at Melius Research.
But Broadcom said its profit margins would be under pressure throughout the year due to the high proportion of revenue coming from AI. There is a $73 billion backlog with orders expected to ship over the next 18 months.
If current losses continue, Broadcom's market capitalization could fall by more than $213 billion.
“We believe this decline is due to commentary on gross margin dilution from AI chips, which is not a concern to us as these chips are accretive to operating margins,” Morningstar analysts said.
Alan John reports from London and Zaheer Kachwala and Joel Jose from Bangalore. Editing: Amanda Cooper and Arun Koyur
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