Broadcom Plunges Despite Record Quarter, Companies Start Rationing AI

**Zaid Admani** (0:00)
Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Thursday, June 4th. In today's episode, we'll break down why Broadcom's record quarter wasn't enough for Wall Street, and what it means for the AI trade. We'll also tell you about Amazon's massive new cloud deal with Pinterest. Then stick around to the end of the show to find out why some of the biggest companies in the world are quietly cutting back on AI spending. We got a great show for you today.
Let's go.
Well, stocks finally took a breather on Wednesday. The S&P 500 fell 0.7%, snapping a nine-day win streak, and the NASDAQ did even worse, dropping 0.9%.
But you know, after the run the stock market has been on, a pullback was probably overdue. Now, there were two main factors that led to a market decline yesterday. The first was the Iran war, and the second one, I can't believe I'm saying this, was tariffs. Let's start with Iran first. Oil prices jumped about 2% yesterday after reports of an Iranian drone strike in Kuwait, followed by US military strikes near the Strait of Hormuz. So the fighting in the Middle East hasn't stopped, and the market decided to care about that, at least for yesterday. But I think the bigger news, though, was that the tariff drama is coming back for season two. The Trump administration proposed a new set of tariffs on imports from 60 countries over forced labor concerns. This new proposal would slap a 10% tariff on countries like Canada, Indonesia and the European Union countries, along with a 12.5% tariff on roughly 45 other countries, including China, India, Japan and South Korea. These tariffs will go into effect on July 7th after a public hearing. So this new proposal is essentially the Trump administration trying to revive parts of its tariff agenda after the Supreme Court struck down their Universal IEPA tariffs earlier this year. And I'm sure these new tariffs will face some legal challenges as well. So yeah, it seems like tariff uncertainty is back. Now, speaking of uncertainty, my God, Bitcoin just keeps sliding this week. Bitcoin fell for the fourth straight day yesterday and it's now trading under $63,000. Here's an interesting stat that I came across yesterday. Bitcoin ETFs are on a 12 day outflow streak with about $4 billion pulled out during that time. My takeaway from that is that there just aren't enough buyers stepping up to buy the Bitcoin dip. I think that traders have moved on from crypto into AI stocks and it's hard to blame them with the way that some of these AI names are moving these days. So we'll continue to keep an eye on Bitcoin along with oil prices and now tariffs again. And don't forget tomorrow, the May jobs report drops. So that'll tell us how the labor market is holding up. We'll recap that report on tomorrow's show, along with everything else happening in the market. So make sure you guys are subscribed to the podcast and tuning in every day to stay in the loop. Let's run through some headlines. Starting with Broadcom. Broadcom has been one of the biggest winners of the AI boom over the past couple of years. The company's now worth over $2 trillion. Well, they reported earnings last night and the market did not like what they heard and the stock is down big this morning. Now the numbers themselves were pretty good. Revenues jumped 48% from last year to $22.2 billion. Net income nearly doubled to $9.3 billion. And free cash flow was more than $10 billion.
And the growth has been driven by AI. Broadcom's AI semiconductor revenue hit $10.8 billion, which is up 143% from last year. And the company expects that number to jump to $16 billion in the current quarter, which would be triple what it was in the same quarter last year. See Broadcom has seen a huge surge in demand for helping design custom AI chips for some of the biggest names in tech, we're talking Google, Meta, Anthropic, and OpenAI. These tech companies want their own custom chips to not be so reliant on NVIDIA, so they turned to Broadcom to help with the design. But despite the record quarter and insane growth, Wall Street was not impressed. And I think it's because CEO Hock Tan did not raise Broadcom's long-term AI chip sales forecast. The company says they're still targeting $100 billion in AI chip revenue in 2027 And I think Wall Street wanted to see that number come in higher, especially since Broadcom stock has gone up 40% this year. The other red flag from the earnings was what Hock Tan said on the earnings call. He mentioned that Google, which is Broadcom's biggest and longest standing customer, is likely going to diversify its supply chain. In other words, Google might start buying custom chips from other suppliers too, which could impact Broadcom's business long-term. So that's why despite a record-breaking quarter, Broadcom stock is selling off hard today, down around 15% at the time of this recording. And that sell-off is dragging down other chip stocks, Marvell, Intel, Micron are all down around 4-5% this morning. Now I think this is a great example of how expectations from investors are getting really high for these chip companies. And if they don't meet them, the sell-off can be pretty brutal. Let's stick with the AI infrastructure theme and talk about Amazon. Amazon's AWS just signed a $4 billion cloud deal with Pinterest that runs through 2031 This is Pinterest's largest ever infrastructure investment, and it's going to power AI-driven discovery on their platform. See, Pinterest has more than 600 million monthly users, so they have a ton of data on people's personal styles and preferences, and they want to use AI to help people find and buy things they would like on the Internet. So that's going to take a ton of compute, so they're turning to AWS for those computing needs. And a key part of this deal is that Pinterest will be using Amazon's custom training and chips to train and run their AI models, and they're going to use Amazon's Graviton chips to handle the broader computing workload. And that's why this deal matters. For Pinterest, this is about scaling their AI discovery, but for Amazon, this is about defending AWS and proving that their own chips can power major AI workloads. AWS is still the biggest player when it comes to cloud computing, but it's now the slowest growing of the top three. Microsoft Azure and Google Cloud are posting much faster revenue growth, thanks in part to the growing demand for AI workloads. But look, Amazon is starting to catch up. AWS growth reaccelerated in recent quarters. And if Amazon can get more customers to build on Tranium and Graviton chips instead of NVIDIA chips, it could lock in their lead as the dominant cloud provider moving forward. Pinterest is just the latest partnership. AWS also has commitments from AI heavyweights like Anthropic and OpenAI, which have roughly committed to spending $100 billion on AWS. Shares of Amazon are up more than 1% this morning in reaction to this deal. And so yeah, I would keep an eye on Amazon. I feel like they haven't gotten as much love when it comes to AI compared to the other Mac 7 companies, but they might be a sleeping giant here.