Shares of Broadcom declined sharply in morning trading, falling 4.9% to $398.51 as the market extended a two-day selloff that began after the company released its fiscal second-quarter results following the close on June 3. Investors focused not on the quarter itself, which produced record revenue and a slight earnings beat, but on the forward-looking guidance that failed to match the heightened expectations embedded in the stock.
For the quarter, Broadcom reported revenue of $22.19 billion, up 48% year-over-year, and adjusted earnings per share of $2.44, topping the $2.40 consensus. Despite those positive headline results, the stock moved lower as management’s outlook for AI-related revenue came in below analyst models.
The immediate catalyst for the pullback was Broadcom’s Q3 guidance for AI chip revenue of $16 billion, a figure roughly $1.2 billion beneath what analysts had anticipated. Compounding investor concern, CEO Hock Tan chose to reiterate the company’s long-term AI semiconductor revenue target rather than increase it. On the company’s earnings call, Tan said, "We expect this momentum to continue into fiscal year 2027 and reiterate our AI semiconductor revenue guidance to be in excess of $100 billion." Market participants read that as confirmation of continued momentum but not accelerated growth.
Additional elements of the report added to the negative sentiment. Infrastructure software revenue came in at $7.18 billion, missing the analyst consensus of $7.32 billion. Management also signaled a strategic shift toward a "chips only" model, stepping back from prior commitments to integrated AI systems, which may have shifted investor expectations about Broadcom’s product roadmap and revenue mix.
Analyst reactions varied but were broadly constructive on the company’s long-term outlook. Jefferies raised its price target to $550 from $500 while keeping a buy rating, and KeyBanc increased its target to $575 and maintained an overweight stance. Macquarie diverged from that view and downgraded AVGO to Neutral. The miss and management comments produced ripple effects across the semiconductor sector, where peer chipmakers also experienced declines during the session.
The broader market provided an additional headwind. The NASDAQ fell about 1.9% and the S&P 500 declined roughly 1.0%, with traders reacting to geopolitical tensions after the rejection of a U.S.-brokered ceasefire in the Middle East. That risk-off environment amplified selling pressure in high-valuation stocks and sectors sensitive to growth expectations.
All told, the combination of a single, high-importance metric missing expectations - AI chip revenue - management’s choice to reiterate rather than raise the long-term AI revenue target, and a risk-off macro backdrop created conditions for continued selling. Broadcom now trades nearly 20% below its 52-week high of $495 as the market reassesses the pace at which AI revenue can reasonably accelerate from current levels.
Summary
Broadcom reported record fiscal Q2 revenue and slightly beat EPS estimates, but investors reacted negatively to a Q3 AI chip revenue guide that missed analyst models and to management reiterating, rather than raising, the long-term AI semiconductor revenue target. Mixed analyst responses and a risk-off market amplified the stock’s decline.
Key Points
- Broadcom posted record Q2 revenue of $22.19 billion and adjusted EPS of $2.44, beating consensus by a small margin.
- Q3 AI chip revenue guidance of $16 billion missed analyst expectations by roughly $1.2 billion, and the long-term AI semiconductor revenue target was reiterated at in excess of $100 billion.
- Sectors affected include semiconductors and infrastructure software, with the broader market and peer chipmakers also pressured amid a risk-off environment.
Risks and Uncertainties
- Guidance risk: AI chip revenue for Q3 was below analyst models, creating uncertainty around near-term growth in the semiconductor segment.
- Execution and strategy shift: The move toward a "chips only" model and the shortfall in infrastructure software revenue introduce questions about product strategy and revenue mix.
- Macro and geopolitical risk: Broader market weakness tied to geopolitical tensions contributed to selling pressure, adding uncertainty for high-valuation technology and semiconductor stocks.