Broadcom’s Stock Whiplash

**Tyler Crowe** (0:02)
We've got Broadcom's Stock Whiplash today on Motley Fool Hidden Gems Investing.
Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by the Longtime Fool Contributors, Lou Whiteman and Matt Frankel.
Today, we were going to do a little, kind of mix it up a little bit. We thought we're going to do a bunch of different segments and do some basically non-earnings takes because it's June. We don't normally get a lot of surprise earning stuff, but then Broadcom had to go and give its earnings and now it's stocks down, I think almost 15 percent as we are taping today. As we're going to get into it, I'll let you guys really digest the numbers here. But by all objective metrics, all the numbers looked good. The guidance looked fine.
Is this really just expectations game, Lou? Yeah, I think it is. Expectations are everything, right? It's glass half full, glass empty. Stocks up 15 percent just heading into earnings. When you get that sort of expectations, any slight hiccup, any slight sneeze can set you back. This was a slight miss on revenue. But look, it's brutal when people are expecting enough. Apparently, it was enough to outweigh 140 percent gains in AI semiconductors sales, which I don't know Tyler, sounds pretty okay to me. Yeah, Matt, you were the task a little bit more with the nitty gritty of the numbers here. What did you see in this that was like, maybe not great. I don't know. It's kind of hard to look at these and say, yeah, we should definitely be dropping the stock by 15 percent because that's just what we do these days.

**Matt Frankel** (1:36)
Yeah, it's not only Broadcom, CrowdStrike also reported. We're getting all the reports from companies that use weird fiscal years and some of them haven't been too impressive. But there was a lot to like here. 48 percent revenue growth, they beat on the bottom line.
As Lou said, 140 percent roughly growth in AI semiconductor revenue. The guidance was strong, but if you look into the guidance, the AI revenue that they're guiding for is not quite what the market expected, so that could be driving a little bit of the sell-off. Any slowdown in AI or perceived slowdown is enough to scare investors. It's not just that it was running up 15 percent heading into earnings, Broadcom was up 90 percent over the past year.
In a nutshell, the stock went into the report priced for a blowout quarter and blowout guidance. It was a good quarter, I wouldn't call this a blowout quarter, especially on the AI side of the business, not a blowout.

**Tyler Crowe** (2:29)
Yeah, we certainly did see a lot of blowouts this most recent quarter, looking at a lot of these suppliers, Taiwan, Semi, basically everyone was like, everything is awesome. With Broadcom's numbers looking pretty good, it was almost like comparing to everyone else. It's like, well, they were that good, can you do as well? And this kind of touches on a couple of top themes and topics we've discussed so far during this week. Like when you and the three of us were on the show on Tuesday, we were talking about like, how much does narrative play into your thesis? And narrative kind of is also valuation based. And we were talking about this with Dollar General, because as a value play as a stock, you kind of are betting on a return to median, return to average kind of valuation.
Right now, we're kind of all the narrative is defying expectations to justify very high valuations. And at the same time, too, it touches on this idea of kind of the start, stop, whack-a-mole discussion about the AI buildout that Lou, you, I, and Travis were talking about yesterday, where it seems like every couple months here, we're talking about the next bottleneck. At first, it was going to be chips, right? And then it became memory chips. And now, we're talking about the old companies like Dell that are just building off products. And we can name 15 other suppliers, where somewhere, there's a stop, start going on here, where somebody is doing awesome. But then, just because they didn't blow out earnings, they're going to have a 15% stock drop. Yeah, so two points here, one macro, one micro, I guess. And first of all, the macro, the narrative. I think you are so right. And I think investors better be watching the narrative right now. Because there is a real, real indication that nothing is good enough. I mean, look at what happened with NVIDIA's quarter. Look what the stock did there. Expectations are so out of this world right now that I don't know if any company almost can satisfy the market long term. For strong companies that can outlast the cycle, that's just kind of an annoyance. But if you are in some of the, I guess, more speculative AI companies, I think this should be a warning sign to you, that nothing is good enough. So look out below. Specific to Broadcom, look, there are massive expectations still up ahead. CEO Hucked In is forecasting $100 billion in annual AI chip revenue in fiscal 27 They're on pace to do about half of that this year, Tyler. It took triple-digit gains to get to that $50 billion that they hope to do this year.