Chip stocks drop after Broadcom results, pulling down US markets

In short: US stocks fell as chip company shares dropped after Broadcom’s results, and rising interest rate worries added pressure.

What's going on

Chip and memory chip stocks led a sharp sell-off on Wall Street on Friday. The S&P 500 fell 1.6%, putting it on track for its first weekly loss since late March. The Nasdaq, which has many tech companies, dropped 2.6%.

The pullback followed Broadcom’s earnings report, which did not meet the most optimistic revenue forecasts. Broadcom shares fell more than 5% on Friday after dropping 12.5% on Thursday. Investors often treat big chipmakers like a weather report for the wider tech sector, because chips are basic parts used in many AI systems (they are like the engine parts inside a car).

Other chip-related stocks fell too. The Philadelphia Semiconductor index dropped more than 6% on Friday, even though it is still up more than 80% so far this year. Arm Holdings, Micron, and Sandisk each fell more than 6%, and the slide spread overseas, with SK Hynix down 10% and Samsung Electronics down 6%.

What to watch

Investors are also reacting to strong US jobs data, which increased bets that the Federal Reserve may raise interest rates this year. Higher rates can make stocks less attractive, since borrowing costs go up and safer returns from bonds can look better.

Market watchers said expectations for tech companies have risen after a strong two-month rally linked to spending on artificial intelligence. If more companies report results that fail to impress, the recent stock market winning streak could be harder to sustain.

Source: Financial Times