Broadcom drops 14% as AI chip sector faces correction

Article by: Tide Research

On Thursday, Wall Street witnessed the most divisive moment of 2026.

The Dow Jones surged 875 points (+1.73%) to close at 51,561.93, setting a new all-time high. The S&P 500 rose 0.41% to 7,584.31. However, the Nasdaq slipped 0.09% to 26,830.96, held back by the technology sector—the only one of the S&P’s 11 sectors to decline significantly (-1.46%). The Russell 2000 gained 1.59% to 2,939.41, as small-cap stocks outperformed large-cap tech stocks for the first time in a while.

This divergence last occurred in early March, when the war first broke out.

Broadcom (AVGO) was the catalyst for this rotation.

The Q2 earnings report released after hours the previous day was not poor overall: AI semiconductor revenue reached $10.8 billion (+143%), a record; non-GAAP EPS was $2.44, exceeding expectations. However, total revenue of $22.187 billion slightly missed the consensus of $22.27 billion, and infrastructure software revenue from VMware amounted to $7.178 billion, below the expected $7.32 billion. More critically, management maintained its long-term target of $100 billion for its AI chip business without raising it.

For a stock that has already risen 55% this quarter and trades at a P/E ratio of 87, these minor disappointments are sufficient reason to sell. Broadcom plunged as much as 15% in pre-market trading and closed down approximately 14% for the day, wiping out over $320 billion in market value.

The ripple effect spread immediately: Qualcomm and AMD each fell about 4%, Marvell and Micron dropped around 7%, and the Philadelphia Semiconductor Index (SOX) declined 2.8% overall. Marvell, which had surged the previous day on Jensen Huang’s “trillion-dollar company” endorsement, gave back part of its gains in a single day.

CrowdStrike (CRWD) was also not spared, despite reporting a comprehensive beat on Q1 earnings (EPS of $1.10 vs. expected $0.88); rising operating expenses sparked concerns, causing the stock to close down 8.5%. As the market shifts into "sell the news" mode, even positive developments are being repriced.

Of the 11 sectors in the S&P 500, eight closed higher and three closed lower, opposite to the previous day’s performance.

Healthcare: +3.14%, top performer of the day. UnitedHealth (UNH) rose 5.7%, directly driving a significant portion of the Dow's gains. The catalyst was Bank of America upgrading its rating to "Buy." As a classic defensive sector, healthcare served as a natural safe haven for capital amid the pullback in AI chips.

Financials: +2.67%. Goldman Sachs (GS) rose 4.7%, making it the second-largest contributor to the Dow's gain. The rise in Goldman Sachs was driven by a specific catalyst: the SpaceX IPO. As the lead underwriter on this $75 billion transaction, Goldman Sachs stands to earn substantial underwriting fees. JPMorgan Chase (JPM) rose 3%, and American Express (AXP) rose 4.4%.

Real estate: +1.87%. The 10-year U.S. Treasury yield declined 1.4 basis points to 4.477%, prompting a rebound in interest-rate-sensitive sectors. The 30-year yield also fell to 4.977%, continuing to trade below the 5% level.

Technology: -1.8%, the weakest sector today. The semiconductor sub-sector was hit hardest; Broadcom's decline was too severe, and even NVIDIA and Apple failed to pull the technology sector back into positive territory.

Another market-shaking announcement on June 4: SpaceX confirmed it will go public on June 12, aiming to raise $75 billion in funding with an estimated valuation of $1.75 trillion. If successful, this will be the largest IPO in U.S. history, and SpaceX will immediately rank among the top ten most valuable companies in the United States.

Investor roadshow launches today. Retail investors can already submit indications of interest (IOIs) on Robinhood and SoFi, with the proposed price set at $135 per share. Goldman Sachs is leading as the lead underwriter.

Notably, regulators have relaxed restrictions on index inclusion, meaning that after SpaceX’s listing, it could quickly be added to major index funds—potentially causing Americans’ 401(k) retirement accounts to hold shares of Elon Musk’s rocket company without their knowledge.

The scale of SpaceX's IPO is large enough to serve as the pricing anchor for the entire June capital market. How much liquidity it will draw from the market and whether it will create a "crowding-out effect" on other tech stocks are issues the market will need to absorb over the coming week.

While SpaceX dominated the headlines, Quantinuum, a quantum computing company under Honeywell, completed its Nasdaq listing on June 4 with an opening price of $68, a 13% premium over its offering price.

Quantinuum’s listing signal is more important than its price: quantum computing is moving from the lab to the capital markets. Investor interest in the "post-AI" narrative is beginning to emerge—a trend worth monitoring closely.

Initial jobless claims announced on Thursday came in at 225,000 (expected 215,000), the highest since February 7. This signal adds a crack to the "resilience narrative" of the labor market ahead of Friday’s non-farm payrolls data.

However, avoid overinterpreting weekly data. The JOLTS report showed job openings surged to 7.6 million in April, the highest level in nearly two years, but the overall labor market landscape remains one of "many openings, few hires"—companies want to hire, but their actual hiring pace is slowing. The Fed needs to see more data before determining the direction of its interest rate policy.

Friday at 8:30 AM ET, the May Non-Farm Payrolls report will be released. This is the ultimate arbiter of all this week’s narratives.

The market on June 4 sent a clear signal: AI chips aren't bad—they're just too expensive.

Broadcom's AI semiconductor revenue grew 143% year-over-year, with a free cash flow margin of 46%—dream figures by any industry standard. But an 87x P/E ratio means all good news is already priced in; even a 0.4% revenue miss triggered a 14% plunge. This is the danger of being "priced to perfection."

The capital never left the market—it simply moved to a new home. It shifted from semiconductors to healthcare, finance, and real estate. The Dow Jones surging 875 points to a new high is the receipt of this relocation. UnitedHealth, Goldman Sachs, and JPMorgan—names that rarely played a leading role in the AI narrative over the past three years—proved on June 4th that their value doesn’t depend on GPUs.

The issue is: Is this rotation a trend lasting several weeks, or just a one-day pulse? The answer depends on two factors. First, the non-farm payrolls on Friday. If the employment data comes in strong, expectations for Fed rate hikes will rise, potentially halting the rebound in interest-rate-sensitive sectors (real estate, utilities), causing capital to flow back into technology. Second, the pricing and subscription levels for SpaceX’s IPO on June 12—its $75 billion funding requirement alone acts as a massive liquidity siphon.

In the short term, the semiconductor sector needs a "cooling-off period" to digest its valuation bubble. In the medium term, the fundamentals of AI remain unchanged; the market has simply begun to recognize that there is a gap between good companies and good stocks—measured by valuation.

Data sources: CNBC, Yahoo Finance, Reuters, TheStreet, BLS, Schwab

Disclaimer: The views expressed in this article are those of the author and do not constitute investment advice. The market carries risks; invest with caution.