The sell-off looks more like a positioning reset than a breakdown, but the near-term path depends on follow-through.

What drove the drop

Broadcom’s decline was less about earnings quality and more about expectations. AI names were priced for flawless execution, expanding margins, and clear long-term visibility. Any hint of margin normalisation or guidance ambiguity was enough to trigger de-risking. The rotation into defensives reinforces the view that investors were crowded on one side of the trade.

Rebound or continuation

Short term (next week): A technical rebound is plausible, especially if there is no fresh macro shock. Oversold conditions in large-cap tech and systematic flows can support a bounce.

Sustainability: The rebound, if it comes, is likely to be selective rather than broad-based. Stocks with clearer AI monetisation and margin visibility should stabilise faster than those reliant on narrative momentum.

What to watch

Whether the Nasdaq can reclaim key support levels on rising volume.

Bond yields and financial conditions. Further easing would help tech stabilise.

Management commentary from peers. Any reaffirmation of AI demand or capex plans could shift sentiment quickly.

Bottom line

This does not yet look like the end of the AI trade, but it signals a transition from multiple expansion to earnings discipline. Expect higher volatility, faster rotations, and fewer straight-line rallies. The market is recalibrating, not abandoning, the theme.