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TLDR
- Broadcom stock dropped nearly 11% after earnings despite beating expectations and raising guidance due to misinterpreted management comments
- Jim Cramer says the sell-off is a buying opportunity, calling the custom chipmaker “on fire” with major clients like Alphabet, Meta, ByteDance, and Anthropic
- Investors worried about margin concerns when CFO mentioned lower gross margins from passing through more component costs in system shipments
- CEO Hock Tan didn’t dismiss the possibility of customers developing custom chips in-house, raising partnership concerns with Google
- CNBC Investing Club raised Broadcom price target by $10 to $425 while maintaining hold rating
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Broadcom shares took a beating Friday, falling nearly 11% despite delivering strong quarterly results Thursday evening. The custom chipmaker beat earnings expectations and raised guidance. But investor reaction tells a different story.
Broadcom Inc., AVGO
Jim Cramer sees the drop as a chance to buy. “This company is on fire,” he said on CNBC’s “Squawk on the Street.” He pointed to Broadcom’s impressive client roster.
The list includes Alphabet, Meta Platforms, ByteDance-owned TikTok, and Anthropic. That’s a who’s who of tech giants banking on AI.
So what spooked investors? A few things combined to create the perfect storm.
The stock had already run up ahead of earnings. High expectations got even higher. When management made some comments on the earnings call, the market panicked.
CEO Hock Tan fielded a question about customers potentially developing custom chips in-house. He didn’t shut down that possibility immediately. That raised red flags about Broadcom’s partnership with Google-parent Alphabet.
Broadcom co-designed the custom chips that trained and run Google’s Gemini 3 AI model. Investors started wondering if that relationship might be at risk.
Margin Worries Take Center Stage
CFO Kirsten Spears added fuel to the fire with comments about margins. She explained that shipping more systems in the second half means passing through more third-party components.
“Those costs will be passing through more costs within the rack,” Spears said. “And so those gross margins will be lower.”
Wall Street didn’t love hearing that. Concerns about AI market froth were already brewing. The margin commentary hit a nerve.
Cramer dismissed these worries outright. He called the margin concerns an opportunity rather than a problem.
“If the margin commentary was why the stock was down, basically it’s an opportunity,” Cramer explained. “At the end of the day, there’s more business, even a lower gross margin, maybe a new customer.”
Price Target Raised Despite Volatility
The CNBC Investing Club adjusted its Broadcom position after earnings. The club maintained its hold-equivalent 2 rating. But it raised the price target by $10 to $425 per share.
Broadcom hit a record high close of $413 on Wednesday. That came just before the earnings report. The new price target reflects continued confidence despite the pullback.
Both Broadcom and Meta are holdings in the 35-stock CNBC Investing Club portfolio. Cramer advised investors to remain patient during the early trading hours.
He recommended letting the market settle rather than making rushed decisions. Some profit-taking likely contributed to Friday’s decline after the pre-earnings run-up.
Cramer encouraged listeners to tune into the upcoming Investment Club call at noon for more insights. He planned to discuss strategies for handling Broadcom and broader market moves.
The custom chip business continues to grow as AI demand surges. Broadcom’s client list keeps expanding across major tech platforms. The company raised its guidance for good reason.
Broadcom co-designed custom chips for Google’s latest AI model. That partnership remains intact despite Thursday’s uncertainty. The chipmaker also works with Meta, ByteDance, and other AI leaders.
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