AI sector expectations reset

What happened: Broadcom's (AVGO) AI revenue guidance fell short of investor expectations, leading to a 14% share price drop on May 25. Meanwhile, Nvidia's (NVDA) CEO Jensen Huang predicted AI capex could reach $4 trillion, contrasting with current estimates of $1 trillion by 2025. SES AI (SES) reported a 929% year-over-year revenue increase, while UBS adjusted its outlook on ServiceNow (NOW), causing its stock to decline. OpenAI's disappointing growth sparked a discussion on tech investors' concerns. iCapital warned of slower economic growth and increased AI scrutiny in the second half of 2026.

Market impact: The AI sector experienced a reset in investor expectations, with Broadcom's guidance miss and UBS's ServiceNow outlook adjustment leading to share price declines. Nvidia's bullish AI capex prediction and SES AI's strong results boosted sentiment. The market punished companies like ASML and ServiceNow for not explicitly attributing growth to AI, while rewarding those that did, such as Snowflake and Dell. AI stocks' mixed performance sent conflicting signals, with Nvidia down nearly 5% year-to-date despite its GPU dominance.

What to watch next: Investors await Nvidia's earnings on May 24, which could provide further clarity on AI demand and capex trends. ServiceNow's earnings on June 1 and Broadcom's on June 7 will offer insights into AI adoption and guidance accuracy. Additionally, regulatory decisions and economic data releases, such as the GDP report on July 28, will help gauge the broader economic landscape for AI investments.