Friday’s sell-off looks less like a breakdown and more like a positioning reset within a crowded AI trade.
Why the drop happened
Broadcom’s results exposed a key risk the market had been under-pricing: AI revenue growth does not automatically translate into expanding margins. The lack of FY2026 AI guidance forced investors to de-risk, triggering rotation into defensives rather than outright risk aversion. Importantly, this was a valuation and expectations shock, not a balance-sheet or demand collapse.
Rebound or further downside?
A short-term rebound is likely, but it may be tactical rather than structural. Many AI leaders remain above key long-term trend supports, and CTA and systematic selling should ease after the initial shock. Dip-buyers will likely re-emerge, especially if macro data stays benign and yields stabilise.
However, upside is unlikely to be explosive. The market now demands proof of profitability, not just AI exposure. Stocks with weaker margin visibility or heavy capex narratives may continue to lag.
What to watch next week
US bond yields and dollar direction
Follow-through selling in semiconductors beyond AVGO
Whether defensives continue to outperform growth
Base case: choppy rebound, not a V-shaped recovery. Selectivity matters more than beta.
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