Chip giant Broadcom in reverse: Correction after AI boom

After the chip manufacturer Broadcom impressed the stock market last week with strong business figures in the AI segment, the company has now experienced a correction. Driven by significant growth in the field of Artificial Intelligence (AI), Broadcom's stock previously saw a two-day rally. However, the euphoria was curbed at the beginning of this week by a price drop of 4.4 percent. The background is that the semiconductor sector as a whole is weakening, and Broadcom is not exempt from this. Even though there were no specific company news, investors are apparently discussing the appropriate value of the stock after its price increase. Broadcom's recent quarterly figures largely met the expectations of analysts. The company particularly drew attention with a remarkable increase in AI revenue of 220 percent. For the first quarter of 2025, the management forecasts further AI growth of 65 percent, supported by strong demand for their Jericho 3 Ethernet switches, which were developed for AI networks. Despite the optimism for Broadcom's AI potential, skepticism about the sustainability of the AI boom seems to be spreading in the market. Competitors like Nvidia, Arm, and Marvell have also recorded price declines. Signs suggest that the growth of investments in the AI sector could flatten in the coming year, as indicated by Nvidia's ongoing price decline. Broadcom is currently trading at a price-to-earnings ratio of almost 50, with growth expected to slow as the company processes the acquisition of VMware, which was completed in November 2023, in its figures. In the long-term perspective, however, Broadcom is likely to remain strongly positioned, especially through significant advances in the AI sector. For savvy investors, now might be the right time to position themselves.