Broadcom’s 12.6% sharemarket slump on Friday showed a crack emerging between the expectations ascribed to the growth of artificial intelligence-related revenues and reality.
The semiconductor company’s second quarter sales of US$22.2 billion didn’t quite meet market expectations, while current third quarter AI chip sales forecast of US$16b was also below predictions.
It also reiterated its US$100b AI revenue forecast for FY2027, which Reuters reported had disappointed investors.
The share price slump wiped US$286b off the company’s market capitalisation and led to a sell-off of its peers such as Marvell, AMD, Micron, Intel and Qualcomm, which fell between 1.6% and 6.5% on the day.
Stock market darling Nvidia’s value rose 1.3% during the first four days of the US week after announcing a new product – the RTX Spark superchip – on Monday. The chip combines a central processing unit and graphics processing unit to power new Microsoft Windows laptop and desktop computer models to be released later this year.
Even that stock’s initial pop was dragged down over the rest of the week.
But, as has often been the case in recent years, any fall in the value of these stocks comes after periods of astounding positive share price performance.
Broadcom’s shares had climbed 38% in the year to the end of Thursday (NZ time), which included a 15% rise in the two weeks before its earnings announcement.
The AI trade is still going strong, said Generate Wealth investment specialist Greg Smith, with the latest drops representing “just a bit off the top after a huge run”.
“Everything that's driven these stocks higher is still in place: there's really strong demand, chip makers are saying they’re sold out, and forward demand is really strong over the next 12 months.”
Broadcom CEO Hock Tan.
Rotation
But when investors rotate money out of AI-related names, as had happened this week, companies in more traditional sectors, like United Health, JP Morgan and Walmart tended to benefit, he said.
Meanwhile, the uncertainties of conflict in the Middle East, the elevated oil price, and potential for higher levels of inflation creates a “tale of two economies” where company valuations are spiking but consumers are doing it tough.
The ISM Services PMI, which measure the services sector’s economic health in that country, showed an increased to 54.5 in May from 53.6 in April, above the forecast of 53.8. It was the strongest gain in three months.
However, employment contracted for a third consecutive month (47.9 vs 48) with those surveyed saying their companies had instituted hiring freezes or were not filling vacancies.
ISM’s Manufacturing PMI rose to 54 in May from 52.7 in April, ahead of the 53 that was forecast. It was the strongest expansion in the factor sector since May 2022, noted TradingEconomics.com. Job openings in the US rose by 731,000 in April to 7.618 million, which was above market expectations of 6.88 million, highlighting labour market resilience despite rising energy costs from the Iran conflict.
Walmart's stock was up more than 4% in the latter part of the week.
Local weakness
In New Zealand, Smith noted telco giant Spark’s shares hit a fresh all-time low this week, closing below $2 for the first time.
He said the market was clearly still questioning Spark’s turnaround plan and new dividend policy, and it also reflected weakness in the economy in general.
That weakness was also evident in the performance of construction sectors stocks, Smith noted, with the value of non-residential building activity in March down about 4%.
However, building consent numbers released this week showed the seasonally adjusted number of new dwellings consented rose 11% in April, after falling 0.8% in March 2026.
In the year ended April, the number of new dwellings consented was up 16% from the year ended April 2025. The annual value of non-residential building work consented was $8.9 billion, down 0.4% from the previous year. 
