S&P500: Broadcom Rekindles AI Doubts as Fed Cut Debate Weighs on Tech Stocks

S&P 500 and Nasdaq Slip as Broadcom Rekindles AI Profitability Fears

U.S. equities retreated on Friday, with the S&P 500 and Nasdaq pulling back from record territory as renewed concern over artificial intelligence profitability weighed on technology stocks. Broadcom’s sharp selloff offset recent optimism tied to the Federal Reserve’s less hawkish outlook for rate cuts through 2026, reinforcing a rotation away from mega-cap growth leaders.

At 16:09 GMT, the Dow Jones Industrial Average was down 230 points, or 0.47%, while the S&P 500 fell 1.19% and the Nasdaq Composite slid 1.79%. Despite the pullback, all three major indexes remained on pace for weekly gains following the Federal Reserve’s third interest-rate cut of the year.

Why Did Broadcom Trigger Fresh AI Anxiety?

Broadcom shares slid more than 8% after the chipmaker warned that margins on its AI system sales could narrow, even as it forecast strong quarterly revenue and said AI chip sales are expected to double year over year. Investors focused on margin dilution rather than top-line growth, raising broader questions about the sustainability of returns across the AI supply chain.

The move pressured the wider semiconductor space. Advanced Micro Devices fell 1%, while the Philadelphia Semiconductor Index dropped 1.5%.

Oracle shares declined another 2.3% a day after issuing a weak outlook, compounding concerns that enterprise AI spending may be less profitable than previously assumed.

Is Market Leadership Broadening Beyond Big Tech?

While technology dragged on headline indexes, market breadth improved. Nine of the 11 S&P 500 sectors traded higher, with financials, health care, and industrials attracting inflows.

Visa, UnitedHealth Group, and GE Aerospace posted gains, underscoring demand for value-oriented and cyclical names.

The Russell 2000 continued to outperform, extending its quarterly lead over the S&P 500 as investors favored small-cap and domestically focused stocks. Health care was among the stronger-performing sectors, reflecting defensive interest alongside rotation out of AI-linked growth names.

How Is Fed Policy Influencing Trader Positioning?

Fed officials delivered mixed messages following this week’s rate cut. Policymakers including Chicago Fed President Austan Goolsbee cautioned against front-loading easing while inflation remains elevated. Even so, futures markets continue to price in 50 basis points of cuts by the end of 2026, more than the Fed’s latest projections.

Philadelphia Fed President Anna Paulson added that labor market risks now outweigh inflation concerns, reinforcing expectations that policy will remain accommodative if employment weakens.

Market Forecast: Cautious Near-Term Bias

Near term, equity trading is likely to remain choppy. Pressure on AI leaders such as Broadcom suggests further consolidation in the Nasdaq, while improving breadth and steady rate-cut expectations support value and small-cap stocks. For active traders, the bias favors selective exposure outside mega-cap tech until earnings clarity improves on AI margins and Fed messaging becomes more consistent.

More Information in our Economic Calendar.