(June 5): Wall Street drove a rotation out of chipmakers into several other industries that tend to benefit from a resilient economy after Broadcom Inc’s underwhelming outlook tested the artificial-intelligence trade.
A blistering run in semiconductor companies from war-driven lows took a breather as Broadcom’s forecast for sales of AI chips disappointed investors hoping for more. The stock tumbled the most since January 2025, dragging down a key sector gauge by 2.2%. Despite weakness in the high-profile group, about 360 firms in the S&P 500 rose. In the run-up to jobs data that’s expected to reveal solid growth, the Dow Jones Industrial Average hit all-time highs.
The insatiable appetite for equities that’s already spurred a 20% surge in the S&P 500 from this year’s bottom is sending the benchmark towards its longest streak of weekly gains since 1985. Hopes for a diplomatic way out of the Iran war alongside signs of economic resilience and strong corporate profits have bolstered Wall Street optimism.
Meantime, the selloff in chipmakers came on the heels of an advance that put the industry’s stocks on track for their best year since 1999. While those companies continue to benefit from the flood of cash being spent on AI, calls for consolidation have emerged after such a powerful advance.
“The rally off the March lows has been an extremely strong one. In fact, it has been parabolic, especially for the chip stocks,” said Matt Maley at Miller Tabak. “Therefore, if the earnings report from Broadcom is the catalyst for a pullback that lasts more than a day or two, it would actually be healthy for the stock market.”
Traders also continued to keep a close eye on the latest Middle East developments. Oil fell amid expectations the US and Iran are inching closer to a peace deal after a conditional ceasefire between Israel and Lebanon. That’s even as the truce was marred by ongoing clashes.
Despite these geopolitical uncertainties, the fundamentals are telling a different story, according to Bret Kenwell at eToro. Earnings estimates have continued to move higher, while management teams have talked up a resilient consumer, he said.
“For retail investors, that ultimately created a buy-the-dip opportunity,” Kenwell noted. “At the same time, markets could use a breather. That doesn’t mean stocks are set to roll over, but it does suggest the market could benefit from some rotation, consolidation, or at least a little digestion after such a powerful run.”
To Mark Malek, the AI trade is entering a more mature phase where story quality matters as much as revenue growth.
“The market is no longer paying endlessly for AI stamped on the box,” said the chief investment officer of Siebert Financial. “Broadcom did not have a bad quarter; the stock had a bad setup. Demand is real, spending is real, and the opportunity remains massive. But prices can still run ahead of reality.”
Uploaded by Isabelle Francis
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