Broadcom (AVGO) shares fell sharply on Thursday, dropping as much as 5.1% during the session before closing the day down 4.4%.
The selloff was triggered by news that OpenAI’s annualized revenue was substantially lower than what had been previously reported to the market.
Broadcom has a direct financial connection to OpenAI that goes well beyond the broader AI sector sentiment that typically moves these stocks together.
Reports emerged that Broadcom was working to arrange roughly $50 billion in financing for OpenAI to fund the purchase of AI-centric chips.
The two companies have also been collaborating on a custom AI processor, internally referred to as “Jalapeno,” which is expected to be deployed later this year.
Given the depth of that partnership, it is logical that Broadcom would play a central role in helping OpenAI secure the capital needed to purchase its custom-built chips.
If OpenAI’s revenue is lower than previously understood, it may have fewer resources and a reduced need for the volume of chips Broadcom is positioned to supply.
Investor anxiety was further compounded by concerns around circular financing arrangements in the AI space, which have drawn increased scrutiny from analysts and market observers.
Despite the sharp single-day decline, Broadcom’s valuation still appears reasonable at 31 times forward earnings and 18 times next year’s expected earnings, given the scale of the AI opportunity ahead.
For long-term investors, pullbacks driven by accounting disclosures rather than fundamental deterioration can present an opportunity to add shares in a leading semiconductor and networking company at a meaningful discount.
The broader AI sector remained under pressure as markets continued to recalibrate expectations around the financial health and growth trajectories of major AI-driven enterprises.
Broadcom remains a central player in the custom chip market, and its partnership pipeline and product roadmap suggest that Thursday’s decline may prove short-lived for patient investors.
