AI stock rally pauses as Broadcom's underwhelming guidance and unchanged full-year forecast spark broader semiconductor sell-off

The S&P 500 snapped a nine-week win streak and the Nasdaq declined from an all-time high this week. Broadcom's stock tanked 12% after the company issued underwhelming third quarter AI chip guidance and left its full-year forecast unchanged, sparking a broader semiconductor sell-off.

Investors rotated out of semiconductors into defensive plays like Health Care (XLV) and Financials (XLF). Strong results from cybersecurity firms Palo Alto Networks (PANW) and CrowdStrike (CRWD) also failed to impress investors.

Investment strategists characterized the pause as healthy rather than alarming. Kelly Kowalski, head of Investment Strategy at MassMutual, stated the sell-off reflected "very high expectations" rather than "any sort of fundamental change to the long-term AI thesis." Steve Sosnick, chief strategist at Interactive Brokers, called it "a bit of a splash of cold water" for the markets.