Broadcom's AI Business Is Exploding. So Why Is the Stock Falling?

Your Daily Market Update in 10 Minutes. My name is Zayd Admani and today is Thursday, September 3rd. In today's episode, we'll recap earnings from Broadcom and tell you why the stock is under pressure despite a monster quarter. We'll also break down Google's latest victory in court against the DOJ. Then stick around to the end of the show to find out why Microsoft is completely changing the way it reports its financial results, all because of AI. We got a great show for you today. Let's go. Stocks broke the three-day losing streak yesterday with the S&P 500 and NASDAQ both gaining about half a percent. And honestly, the biggest positive news yesterday might be the fact that bond yields didn't move higher. The 10-year Treasury yield finished about 4.79%, which snapped a five-day streak of Oil prices are still climbing because of the renewed fighting between the U.S. and Iran. Brent Crude is trading around $96 a barrel this morning, and that's keeping inflation fears alive and could force the Fed to hike rates at the Fed meeting in a couple of weeks. So now all eyes will be on tomorrow's jobs report for the month of August. The estimates for this report are all over the place. Some forecasters are expecting as much as 121,000 jobs added in the month of August, while other economists think the economy might have lost 25,000 jobs last month. And this jobs report could play a factor on what the Fed decides to do with interest rates. If the labor market shows signs of weakness, the Fed may have to hold off on hiking rates at the September meeting. So I think tomorrow's jobs report could be one of those situations where bad economic news is actually good news for the stock market. We'll break down that jobs report on tomorrow's show, so definitely get subscribed to the podcast if you haven't already and tune in every day to stay in the loop. Let's run through some headlines, starting with Broadcom. Broadcom reported earnings last night, and man, the numbers were absolutely insane, but Wall Street still wasn't satisfied. Broadcom has been one of the biggest winners of AI. They helped design custom AI chips for companies like Google, Meta, and OpenAI, and they're crushing it right now. Revenues in Q2 were up 86% to $29.6 billion, and AI chip revenue was up 221% year over year to $16.7 billion. On top of that, profits more than tripled from last year. So all those metrics that I just mentioned beat Wall Street estimates, and management expects growth to accelerate even more this quarter. CEO Hawk Tan was giving some wild long-term guidance on the earnings call. He said that Broadcom now expects AI chip revenue to reach $115 billion next year, which is roughly double this year's revenue, and the company thinks that revenue could potentially double again to $230 billion in 2028. Management said that demand is so high that Broadcom can't keep up with supply. So all in all, this seems to be a blowout quarter, and you would think with numbers like that, the stock would be ripping, kind of like how Nvidia did after their earnings. But that doesn't seem to be the case here. Broadcom stock is down around 3% this morning at the time of this recording. There were a couple slight misses on this report. The near-term guidance was a little underwhelming. On top of that, operating margin outlook also came in slightly light. And the thing is, Broadcom stock has been beaten up lately. And this report wasn't strong enough for investors to jump back in. I should also mention Broadcom is getting some criticism over circular financing concerns. For example, Broadcom is helping Anthropic finance a data center and also the development of Anthropic's custom AI chips. But then again, Nvidia is also doing that and more, and the market doesn't seem to care about them doing it. This situation kind of reminds me of the HR meme where Nvidia is doing circular financing but the market doesn't seem to care, but when Broadcom does it, the market doesn't seem to love it. Overall, I think Broadcom is in a strong spot here. The growth is accelerating, they can't keep up with demand, and they're working with multiple AI companies to build custom chips for them. So Broadcom could be a balance back candidate in the back half of the year. Let's shift gears and talk about Google. A federal judge handed Google a massive legal victory yesterday, ruling that the tech giant does not have to break up its advertising tech business. So a quick explainer here, Google's ad business isn't just selling ads on Google Search and YouTube. Google also has an ad tech that helps websites sell ad space. Basically, their tech lets advertisers bid on advertising space on websites, and then the websites pay Google a 20% cut on every sale. But back in 2025, a judge ruled that that was an illegal monopoly and the DOJ wanted Google to sell the ad exchange business. Well, the judge is not forcing that, but Google will have to make some changes to their product to make the market more competitive, but it doesn't have to sell this business. Honestly, though, this ad exchange business is a pretty small part of Google now. It brought in about $30 billion in revenue last year, which sounds like a lot, but it's only 8% of Alphabet's revenue and accounts for less than 1% of the company's profits. This business has also been shrinking for 16 straight quarters, so I don't think the market really cares about this business, and that's why the stock barely moved on this news yesterday. For Google, it's all about AI at this point, and they seem to be falling behind when it comes to their AI models compared to OpenAI and Entropiq. Now, Google did just release a new model called Gemini 3.8 Splash. It's gotten okay reviews, but I feel like Google needs to make a big splash soon, either with a state-of-the-art model or a new AI product to capture some of the hype they had late last year. This year, Google's stock is only up 5% on the year, but the company did just announce a Gemini partnership with Mr. Beast, so I don't know, maybe that's enough to turn things around. Let's talk about some stocks making moves today. Snowflake shares are ripping higher this morning after the company reported a blowout quarter and raised their outlook for the year. Snowflake is a company that makes software that helps businesses store, organize, and analyze huge amounts of data in the cloud. And business is booming right now. Last quarter, revenues jumped 35% year-over-year to $1.55 billion, and adjusted earnings came in at $0.62 per share. Both those metrics beat Wall Street estimates. And there's a strong AI angle here with Snowflake. CEO Sridhar Ramaswamy said that AI products contributed to roughly half of the acceleration in growth for the company. Snowflake's customers are increasingly using the data inside Snowflake to build and run AI applications. Investors really like what they heard. The stock is up more than 20% this morning at the time of this recording. You know, it's pretty crazy when you zoom out on Snowflake's stock chart. The stock was left for dead earlier this year. From October of 2025 to April of this year, Snowflake lost more than half its value because there were concerns that AI agents could replace a company like Snowflake. But so far, the opposite appears to be happening. Customers are moving more and more data onto Snowflake, specifically so they can use it for AI. And now the stock has gone up over 50% on the year. So shout out to everyone that bought the Snowflake dip earlier this year. Honestly, I'm kicking myself for not doing it. Now, on the flip side, shares of NetApp are down this morning, despite the company reporting earnings and beating expectations. NetApp is a data storage company. They make enterprise storage systems, both physical hardware and software that companies use to manage files across corporate data centers and the cloud. And on paper, the quarter looked great. Revenues jumped 30% to $2 billion. Adjusted earnings smashed estimates at $2.54 a share. And then on top of that, management also raised their full year sales and profit outlook. So NetApp hit the earnings trifecta, but the stock is still down more than 8% in pre-market trading today because there are some warning signs under the headline numbers. Like for example, free cash flow for the quarter fell 35% and inventory nearly doubled from $198 million to $375 million. So that can be a sign that NetApp isn't selling products fast enough. On top of that, the expectations for NetApp were already pretty high. I mean, going into the earnings, NetApp shares were already up 70% on the year. And after a huge run up like that, investors expect the earnings report to be perfect. NetApp wasn't perfect. And that's why the stock is down this morning. Let's wrap the show with a fun fact. Microsoft is changing the way they report their financial numbers for the first time in over a decade. And it's because of AI. So since 2015, Microsoft has divided their business into three segments. You had the productivity and business processing segment that included things like Microsoft Office, Teams, LinkedIn, basically the stuff that you use at work. Then there was the intelligent cloud division that included things like Microsoft Azure, plus all the old school server software. And the third segment was personal computing that included things like Windows computers, Xbox, Surface tablets, and Bing, which is somehow still a functioning search engine today. But moving forward, Microsoft is collapsing three segments down to just two. One will be called agents and infra, and the other segment will be called devices and consumer. The agents and infra segment will bring together Azure, Microsoft 365, GitHub, Copilot, and a bunch of other Microsoft enterprise software. And then the devices and consumer division will include things like Windows, Xbox, Surface computers, Bing, LinkedIn, and advertising. Now the other key change that Microsoft is making is they're going to finally start reporting how much revenue Azure makes every quarter. Investors have been asking about this for years now. Up until now, Microsoft mostly told us how fast Azure was growing, but not how much revenue Azure actually made. But moving forward, we'll get the revenue numbers. In fact, Microsoft told us that Azure made $29.4 billion last quarter and over $100 billion over the last fiscal year. Now just for some context, this puts Microsoft behind AWS, but ahead of Google Cloud. Now on the surface, this looks like a boring accounting move, but I think Microsoft is doing this because their stock price has barely moved this year, despite the companies seeing massive growth. Like for example, Azure's revenues grew 42% last year, and Copilot has over 30 million paid subscribers. So Microsoft is an AI growth story, yet the stock is only up 4% this year, while the S&P 500 is up almost 12%. So I think Microsoft is doing this reorganization to put AI all under one bucket so investors can clearly see the impact that AI is having on the business. So it seems like a boring accounting move, but it might be more of a marketing move. And honestly, I think it's pretty smart. Well, alright guys, that's the rundown for today. Hope you guys enjoyed today's episode. By the way, I want to mention, Public is running a promo right now, where if you sign up for an account and deposit $1,000, you'll get $100 in free stuff. That is five times their usual reward, so if you've been holding off signing up for a Public account, right now is the best time to do it. And if you use the link in the description, it'll help the show out as well. Thank you guys again for listening, watching, and commenting. Shout out to Mike and V for all the work behind the scenes, and we'll see you guys back here tomorrow.