Martin Gamble on US markets: AI chip firm Broadcom shines through the turbulence

US stock markets were under pressure this week in response to the conflict in the Middle East with most of the losses seen in the benchmark S&P 500 index and the smaller companies Russell 2000 index.

The Nasdaq Composite showed resilience, gaining just under half a percentage point, led by continued support for big technology companies.

Despite the rush to safer assets, US 10-year bond yields rose more than 4% reflecting investor fears of higher inflation from the spike in oil prices which gained close to 20%.

Disruption to travel and higher energy costs impacted shipping companies Carnival and Norwegian Cruise Line, whose shares sank 14% and 15%, respectively.

Paramount Skydance shares fell after its debt rating was downrated to ‘junk’ by credit ratings agency Fitch. The agency said it expects Paramount to carry ‘materially elevated leverage’ following its successful acquisition of Warner Bros Discovery.

Online travel company Expedia gained 16% after OpenAI reportedly scaled back plans to integrate direct booking into its ChatGPT app.

Broadcom

Shares in Broadcom rose more than 5% after the chip maker delivered better than expected first-quarter earnings and projected $100 billion of revenues by 2027 from its custom-made AI chips for Anthropic, Meta Platforms and OpenAI. The company said it plans to initiate up to $10 billion of share buybacks.

Revenues for the three months to the end of January increased 29% year-on-year to $19.3 billion, slightly below analysts’ forecasts while adjusted earnings per share came in a $2.05 compared with the average $2.03 consensus.

Revenue from AI increased 106% year-on-year to $8.4 billion, driven by “robust demand for custom AI accelerators and networking”, wrote CEO Hock Tan in a company statement.

For the second quarter Broadcom anticipates revenues of $22 billion, above the $20.5 billion consensus estimate.

Looking further out Tan told analysts: “We have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027, we have also secured the supply chain required to achieve this.”

The shares are up 85% over the last year compared with a 26% gain in the Nasdaq Composite index.

Costco

Resilient holiday season demand helped retailer Costco Wholesale top analysts’ estimates for the second quarter of its financial year.

Net sales increased 9.1% to $68.2 billion for the 12 weeks to the end of February, with same-store sales growth coming in at 6.7%, ahead of consensus estimates looking for 5.9% growth.

Net income rose 14% to $2 billion, equivalent to $4.58 earning per share, also ahead of the consensus analyst average estimate.

Memberships income grew roughly 14% to $1.4 billion and digitally enabled sales increased 22%, driven by a mix of 2024 price hikes and genuine membership and sales mix growth.

Costco ended the period with 924 warehouses including 634 in the US and said it is targeting 30 net adds in 2026.

The shares saw some weakness in aftermarket trading. Expectations were high heading into the numbers and the company is on a price to earnings ratio of around 50 times.

Ove the last five years the shares are up over 200% compared with a 78% advance in the S&P 500 index.

Target

Big box retailer Target revealed better than expected fourth quarter earnings per share despite a slight sales miss and projected a return to positive annual sales growth in fiscal 2026.

The shares gained 4% and are up more than a fifth in 2026, compared with a flat S&P 500.  

Incoming CEO Michael Fiddelke who started on 1 February said the company had started the new fiscal year “strongly” which gave him confidence in the company’s turnaround plans.

Target expects 2026 net sales to rise 2% driven by a combination of same store growth plus new stores as well as a contribution from advertising and memberships.

If Target can deliver the anticipated growth, it would end several years of flatlining sales and disappointing earnings.

The company projected adjusted full year earnings per share in a range of $7.50 to $8.50 which, at the higher end, was above consensus analysts’ estimates of $7.68.