Is the semiconductor market getting stretched as a result of the stock market selloff?

New economic data and geopolitical developments have made the stock market selloff caused by Broadcom's disappointing results worse

Late last week, strong economic data and disappointing results from one semiconductor giant caused stock markets to plummet, pushing investors to the exits.

On Friday, June 5, the SandP 500 dropped 2.6 percent, with the seventh-largest component of the index, Broadcom (NASDAQ:AVGO), losing 7.9 percent. The company, which is seen as one of Nvidia's main rivals in the lucrative artificial intelligence (AI) semiconductor market, saw three straight sessions of losses during which Broadcom's shares dropped 19.9%.

As is often the case with crowded trades, Broadcom's problems quickly extended to other funds and stocks.

In the two sessions leading up to June 5, the Nasdaq Composite, which comprises all shares on the tech-dominated index, dropped 4.3%. During the same time period, the NYSE Semiconductor Index-tracking iShares Semiconductor ETF dropped by 12.3%.

View the entire video here.

The stock market selloff has been caused by what factors?

Although Broadcom was the catalyst for the selloff, other macro factors also played a role later in the week.

On Friday, June 5, US labor data was made public. With 70,000 new jobs added in May (compared to a monthly average of 14,000), it revealed an unexpectedly robust job market.

The strength of the labor market lessens the possibility that US interest rates will be lowered, and it actually raises the possibility that the Federal Reserve (Fed) will raise rates due to concerns about rising inflation brought on by the war in Iran.

Because high interest rates tend to limit future economic growth, they are detrimental to stocks, especially tech stocks.

According to Susannah Streeter, chief investment strategist at wealth management firm Wealth Club, "Friday's US jobs report sparked a firestorm of selling, with big tech bearing the brunt of the wobble in confidence." "Semiconductor stocks have seen a sharp decline as a result of the contagion of pessimism in Asian indices."

The US tech selloff and concerns that the precarious ceasefire in Iran might be breaking caused the Korean stock market to halt trading for 20 minutes on June 8 after falling more than 8%. The market had already had to activate a circuit breaker in March after the conflict began.

Semiconductor companies SK Hynix and Samsung, which both saw declines late last week, dominate the Korean stock market.

Why did the stock of Broadcoms sell off?

Broadcom released its results for the second quarter (Q2) of the fiscal year 2026 on June 3.

At £22.19 billion, revenue rose 48% year over year. Analysts surveyed by the London Stock Exchange Group came up with a consensus revenue estimate of £22.27 billion, so this was a little below their expectations.

The fact that Broadcom reaffirmed its projection of £100 billion in AI chip sales for 2027 added to this failure.

These may not seem like big issues, but the market has grown accustomed to AI firms surpassing analyst goals and regularly improving their projections.

"A very high bar has been set, even though the enormous earnings it's raking in are highly impressive," Streeter stated.

The perception that Broadcom's growth trajectory might be slowing raised concerns that demand for other AI-related stocks might slow because the company supplies the larger AI industry.

Does AI have a bubble, and if so, is it popping?

Many investors have been concerned about the possibility of an AI bubble ever since AI stocks began to soar in 2023.

Big tech stocks, especially the Magnificent 7 and close rivals like Broadcom, saw sharp increases in valuation due to predictions that the development of AI would lead to sharp increases in revenue and profits for many years to come.

These stocks are vulnerable to any minor challenge to the narrative of sustained, rapid growth because of these elevated expectations. The exuberance that the market has grown accustomed to is undermined by events like Broadcom's disappointing guidance. Expectations are extremely high.

According to Streeter, "it's not surprising that investors are reevaluating allocations and choosing companies with more reliable income streams and dividends given how heady tech valuations have become." "Fears that the current insatiable demand for the equipment required to support AI products and services would eventually wane, as well as concerns about the spike in tech stock prices, had already been present."

Should you take part in the selloff in the stock market?

Your current portfolio and risk tolerance will determine whether or not you sell stocks in response to the recent market pessimism.

Generally speaking, though, it is usually preferable to refrain from making snap decisions in response to transient market movements.

Investing on a regular basis can help you buy stocks at lower prices during brief downturns and remove emotion and decision-making from the process.

Another way to look at the current pessimism surrounding tech stocks is to consider other industries.

"Companies operating in the 'real economy' may be more sought after those selling consumer staples, providing healthcare, or keeping the lights on through utility services," Streeter stated. "Tech is starting to fall out of fashion."