Why Broadcom Stock Fell 10% in September
What happened
Shares of Broadcom (NASDAQ: AVGO) were moving lower last month after the semiconductor designer known for network solutions and other chips offered underwhelming third-quarter results, and the stock responded to rumors that Google could drop it as a supplier.
According to data from S&P Global Market Intelligence, the stock finished the month down 10%.
As you can see from the chart below, the stock fell at the beginning of the month and continued to slide from there, responding to the broader sell-off in tech stocks as the Federal Reserve projected that interest rates would stay higher for longer.
So what
As you can see from the chart above, Broadcom stock fell 5.5% on Sept. 1 after its Q3 earnings report came with the chip stock down 5.5% on the news.
Broadcom, which some investors see as the chip stock best positioned to take advantage of AI after Nvidia, said that revenue in the quarter rose 5% to $8.88 billion, which edged out the analyst consensus at $8.86 billion.
The company also delivered another round of strong profit with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $5.8 billion, giving it an EBITDA margin of 65%. On the bottom line, adjusted earnings per share rose 8% to $10.54, which topped the consensus at $10.42.
CEO Hock Tan said the results were driven by demand from big cloud infrastructure companies for AI clusters in data centers.
While the results were solid relative to expectations, investors were unimpressed with guidance. The company sees revenue of $9.27 billion in Q4 revenue, representing just 3.9% in revenue growth.
Analyst response to the report was mostly positive, but the stock still sold off as it had already posted strong gains earlier this year, reflecting enthusiasm about its potential in AI.
Later in the month, the stock briefly dropped after The Information reported that Google was considering dropping Broadcom as a tensor processing unit (TPU) server-chip supplier, potentially costing Broadcom billions of revenue.
However, a Google spokesperson told Reuters that there was no change in their engagement with the chip maker. Analysts also saw the move as a negotiation tactic.
Now what
Investors waiting to see an inflection in Broadcom's growth from AI will have to be patient as the overall chip sector is still working its way through a downturn, including an inventory glut and lower prices for some chips.
Still, with its diversification, a promising position in AI, and lack of exposure to weak sectors like PCs, the stock still looks like a good long-term bet, even with its modest growth right now.
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Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
