Wednesday, June 3, 2026

Consensus: $2.40 EPS (51.9% YoY growth) on $22.04B revenue (47% YoY). Company guided $22B. Beat last quarter by $0.02.

What matters: This is the semi thesis catalyst. CEO Hock Tan predicted $100B in AI chip revenue for FY2027 on the March call. AI networking expected at 40% of total AI revenue this quarter (top of the 30-40% range), implying ~$4.3B networking / ~$6.4B chips. Options pricing implies a 7.6% move either direction. 42 analysts rate Strong Buy.

Watch for: AI chip revenue trajectory toward the $100B target, custom chip demand vs Nvidia GPUs (Tan says custom will overtake GPU designs), next-gen Tomahawk 7 timeline, and any commentary on hyperscaler capex momentum. Stock hit an intraday ATH of $488.82 yesterday and is up 32% YTD. The SOX ripped 5.87% yesterday on Computex tailwinds -- if AVGO delivers, semis could have more room to run. If it disappoints, expect a pullback across the sector.

Why it dropped: Three headwinds converged. (1) Trump signed an executive order establishing a federal AI model review program -- voluntary, but spooked investors. (2) CEO Judson Althoff sold 15,500 shares ($7.1M, 12.3% of his position). (3) Broader software-to-semis rotation is accelerating; iShares Software ETF fell 3.9% yesterday.

Context: Stock is down ~9% YTD despite strong fundamentals -- $82.89B revenue last quarter (18.3% YoY), $4.27 EPS beating by $0.21. The 50-day MA is at $403.52, 200-day at $433.78, so it's sitting right on the 200-day. The AI review order is noise -- it's voluntary and unlikely to constrain MSFT's AI trajectory. The CEO sale is modest. This is a sentiment/rotation pullback, not a fundamental one. Reuters notes large institutional buyers have been accumulating through the weakness.

Why it dropped: Surprise $80B equity offering announced after Monday's close. The raise includes: $15B mandatory convertible preferred stock, $15B Class A/C common equity (underwritten), $10B private placement to Berkshire Hathaway at $351.81/$348.20 (6%+ discount), and $40B at-the-market offering starting Q3 2026.

Context: This was not flagged on the April earnings call and caught investors off guard. Alphabet has already raised $85B in debt over the past year (including a 100-year bond). Capex is $180-190B in 2026 and "significantly higher" in 2027. MoffettNathanson analyst: the raise "may signal a meaningfully bigger capital spending push than even the 'significant' 2027 step-up implies." The positive read: Berkshire adding $10B (now ~$31B total position, tied for 3rd-largest holding with Coca-Cola) is a massive vote of confidence from the smartest capital allocator in the market. Dividend raised to $0.22/share (ex-date June 8). The dilution is real but Alphabet has reduced its float by 10% since 2020 through buybacks.

USTR proposed 10-12.5% additional tariffs on imports from 60 economies over alleged failures to curb forced-labor goods. This is the replacement mechanism after the Supreme Court struck down the global 10% tariff in February.

10% tier: Canada, Mexico, EU, Taiwan, UK, Argentina, Bangladesh, Cambodia, Indonesia, Malaysia, Pakistan, Ecuador, El Salvador, Guatemala.
12.5% tier: China, Japan, India, South Korea, Switzerland, Brazil, Australia, New Zealand, and 37 others.

Watchlist impact: Taiwan at 10% could create a modest headwind for TSM supply chain costs, though the direct P&L impact depends on how much gets passed through. Subject to public comment through July 6, hearing July 7. The EU and Switzerland have already pushed back, calling the findings "utterly absurd."