Broadcom’s Stock Whiplash
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What caused Broadcom's stock to drop nearly 15%?
We've got Broadcom stock whiplash today on Motley Fool and Gems Investor. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime pool 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, you know, 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% as we are taping today. As we're going to get into it, I'll let you guys really digest the numbers here, but I 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. Stock's up 15% just heading into earnings. When you get that sort of expectations, any slight hiccup, any slight sneeze can set you back 15%. This was a slight miss on revenue, but, you know, look, it's brutal when people are expecting enough. Apparently, it was enough to outweigh 140% gains in AI semiconductor sales, which, I don't know, Tyler, sounds pretty okay to me.
Yeah, Matt, you were the kind of 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 i don't know it's it's it's kind of hard to look at these and say yeah we should definitely be dropping the stock by 15 because that's just what we do these days yeah and it's not only broadcom a crowd strike also reported we're getting all the reports from companies that use weird fiscal years and uh and some of them haven't been too impressive uh but there was a lot to like here 48 revenue growth they beat on the bottom line As Lou said, 140% 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. And it's not just that it was running up 15% heading into earnings.
How do expectations influence stock market reactions?
Broadcom was up 90% over the past year. So in a nutshell, the stock went into the report priced for a blowout quarter and blowout guidance. And it was a good quarter. I wouldn't call this a blowout quarter, especially on the AI side of the business, not a blowout.
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 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 a 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 and
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 build-out that Lou, UI, 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... It was going to be chips. Right. And then it became memory chips. And now we're talking about, you know, the old companies like Dell that are just building like off products. And we can name like 15 other suppliers where somewhere there's like a stop start going on here where somebody is doing awesome. But then, you know, just because they didn't blow out earnings, they're going to have a 15 percent stock drop.
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Chapters
8 chapters
1
What caused Broadcom's stock to drop nearly 15%?
0:02–2:12
2
How do expectations influence stock market reactions?
2:12–5:46
3
What are the implications of AI semiconductor revenue growth?
5:46–9:39
4
Which sectors are showing surprising stock performance?
9:39–10:40
5
How will upcoming IPOs impact the stock market?
10:40–11:01
6
What are the potential effects of SpaceX and OpenAI IPOs on ETFs?
11:01–12:00
7
How can investors adjust their portfolios for upcoming IPOs?
12:00–13:14
8
What strategies should investors consider in a volatile market?
13:14–27:56