Broadcom Revenue Miss Drags Technology Shares and the S&P 500 Lower

The technology-led selling that followed Broadcom's earnings turned into a rotation rather than a broad market decline. In Thursday's June 4 session the Dow Jones Industrial Average rose 874.86 points, or 1.73 percent, to a record close of 51,561.93 as investors moved out of chipmakers and into other sectors, CNBC reported. The S&P 500 rose 0.41 percent to 7,584.31 and the Nasdaq Composite ended roughly flat, down 0.09 percent, at 26,830.96. The prior session had been weaker, with the S&P 500 down 0.74 percent and the Nasdaq down 0.89 percent, Israeli financial daily Globes reported, the decline concentrated in chipmakers.

Broadcom shares dropped about 15 percent after the company reported fiscal second-quarter revenue of 22.19 billion dollars, just below the 22.27 billion dollars analysts had expected, according to CNBC. The decline came despite a 143 percent year-over-year rise in artificial-intelligence semiconductor revenue, to 10.8 billion dollars, and reflected a third-quarter forecast for AI chip sales of about 16 billion dollars that fell short of expectations. Micron Technology fell more than 7 percent and Arm Holdings declined about 4 percent, while UnitedHealth, JPMorgan Chase and Walmart led the Dow higher as money moved into health care and financial shares.

The decline in chip shares follows an unusually large advance. The S&P 500 rose more than 16 percent across April and May, a two-month gain Deutsche Bank counts as occurring only four times since the Second World War, Globes noted. In three of those instances the market was recovering from a recession, while the fourth preceded the sharp decline of October 1987.

The episode shows how concentrated the market's gains have become in a small number of companies linked to artificial intelligence. When valuations assume continued acceleration, even a small revenue shortfall against expectations can prompt investors to reprice those stocks at once, as Thursday's selling in semiconductors showed. The money did not leave the market, however. It moved into sectors less exposed to artificial intelligence, lifting the broader indexes even as chipmakers fell.