The chip trade isn’t in the dumps, but traders are taking a fine tooth comb to earnings guidance to see if the numbers are stacking up with the hype.

Today we got yet another data point that suggests chip stocks are great, but they aren’t living up to the lofty expectations of growth that tech companies are used to.

In short, they are too expensive and investors want a cheaper multiple for chip stocks right here and now.

So be prepared for a little bit of a selloff in the immediate short term.

One of the best second-tier chip stocks and one of Apple's biggest customers gave us a glimpse into operations behind the scenes at one of Silicon Valley’s robust silicon makers.

Broadcom (AVGO) delivered a disappointing sales forecast, hurt by the parts of its business that aren’t tied to artificial intelligence.

The company projected sales of roughly $14 billion in the fourth quarter while they expect $12 billion of revenue from AI-related products for the full year, beating the average estimate of $11.8 billion.

The forecast showed that Broadcom’s non-AI operations are growing more slowly than anticipated. Though the company has benefited from a surge in artificial intelligence spending, not all of its wide-ranging divisions are significantly profiting.

The AI spending boom has turned Broadcom’s rival Nvidia (NVDA) into the richest, most valuable company in the industry. Nvidia sells so-called AI accelerators that help develop tools such as ChatGPT. Broadcom has benefited as well by supplying related components and software.

Datacenter providers rely on Broadcom’s custom-chip design and networking semiconductors to build their AI systems. The company also sells components for cars, smartphones, and internet access gear. Its push into software, meanwhile, includes products for mainframe computers, cybersecurity, and data center optimization.

Over the long term, the AVGOs CEO believes that the AI chip market will move to custom, in-house designs. That would mean shifting away from Nvidia components — a change that could benefit Broadcom since it helps customers produce their chips.

Apple is a top customer as well: Broadcom provides key components for the iPhone.

Chip stocks were hovering at an all-time high just a few weeks ago.

The scandal that spurred a selloff in chips was the accounting issues at SuperMicro.

The initial event opened up a can of worms and signaled to traders to take profits while conditions were still favorable.

Now chip stocks are telling traders that they cannot keep up with the high expectations and investors will need to taper back the whole idea that AI is about to overtake the world.

Even if AVGOs AI business is doing exceptionally well, they have a legacy business that is bringing up the rear and could be a drag on the overall business for years to come.

AVGO is still a stalwart in the chip business with interests in the right verticals and I do believe it is still a long-term buy especially considering they still haven’t successfully integrated VMware.

“I've actually not read any books on time management.” – Said Elon Musk

Don’t be in denial about artificial intelligence.

The more you fight it – it will fight you back.

It is coming for us and you need to adjust your life accordingly.

That is largely the message I want to convey to readers because the existence of tech companies and how they function has never been changing at such warp speed until today.

Instead of getting all worked up about the hoopla of what it will bring like it is some shiny new Porsche in the garage, we need to get into the weeds to see how it will manifest itself inside the real world.

While the rest of the world still has no idea what artificial intelligence is, tech workers in the Philippines are already living and breathing the new reality every day for better or worse.

The spoiler here is that it is mostly bad for the local workforce in the beautiful island and sovereign nation of the Philippines but positive for the bottom line.

It’s not a shocker that foreign companies don’t like to pay high wages and will even skirt around the low-wage area if they have their way.

Until today, tech workers in the likes of Moldova, Montenegro, and the Philippines were irreplaceable because they represented good value for labor.

Now these workers are getting crushed by the dreaded AI substitute software. 

All of the major players in its vast outsourcing industry, which is forecast to cross $38 billion in revenue this year, are rushing to roll out AI tools to stay competitive and defend their business models.

Over the past eight or nine months, most have introduced some form of AI “copilot.” These algorithms mainly work alongside human operators.

Avasant, an outsourcing advisory firm that works extensively in the Philippines, estimates that up to 300,000 business process outsourcing (BPO) jobs could be lost in the country to AI in the next five years.

In February, payments company Klarna Bank announced AI bots were conducting two-thirds of all customer service interactions, equaling the work of 700 full-time agents.

Readers cannot fall asleep at the wheel by downplaying this transition in the business model of tech companies.

This movement to bots has the potential to save many percentage points of expenses on labor.

I don’t know any CEO who is actively ignoring this hard pivot to software.

For every success story, there will also be failures because let's get this straight, not every CEO or COO knows how to implement and harness the powers of AI.

Not all managers are created equally.

I know it sounds cliché to look at big tech but they are the powerbrokers of the AI industry and unsurprisingly are the ones pouring the most capital into this new technology.

The end results are that only a handful of companies will secure the bounty of profits that AI will deliver.

There will be surprises on the way but Nvidia relaying to investors that the AI narrative is still here is just as important as management talking about how great AI is.

The only caveat I would say is that the honeymoon phase of AI is definitely coming to a close.

Now the real tough sledding starts ahead of us.

For the time being, pick up shares in Nvidia on this nice dip.