Key Takeaways
- Broadcom delivered record-breaking Q2 revenue of $22.2 billion, representing a 48% year-over-year increase, while AI semiconductor revenue skyrocketed 143% to $10.8 billion
- The company’s Q3 AI revenue forecast of approximately $16 billion fell marginally short of some analyst projections, sparking a selloff that pushed shares down over 20% from their recent peak of $495
- Q2 operating margin achieved a company record of 67.3%, with management projecting similar levels around 67% for the upcoming quarter
- HSBC boosted its AVGO price target to $600 while reaffirming a Buy rating, highlighting ASIC revenue expansion and long-term commitments from major clients including Google, Meta, Anthropic, and OpenAI
- Analyst consensus on TipRanks shows Strong Buy sentiment, with a mean 12-month price target of $512.88, suggesting approximately 29% potential upside from the current trading price of $396.60
Broadcom unveiled impressive Q2 financial results recently, yet the market response was anything but celebratory. The company’s AI revenue outlook for Q3 fell marginally below certain Wall Street projections, triggering a steep decline of more than 20% from AVGO’s peak price of $495. Shares are currently hovering around $396.60.
For context: the forward-looking projections were far from disappointing. Company leadership projected approximately $16 billion in AI semiconductor revenue for the upcoming quarter — representing a year-over-year surge exceeding 200% — while reinforcing their commitment to achieving over $100 billion in AI revenue by Fiscal Year 2027. The issue wasn’t weak guidance; market expectations had simply reached stratospheric levels.
Second-quarter revenue reached an all-time high of $22.2 billion, marking a 48% annual increase. AI semiconductor sales specifically soared 143% to $10.8 billion. AI-related bookings exceeded $30 billion during the three-month period.
Free cash flow climbed to a record $10.3 billion, representing 46% of total revenue. The firm’s debt-to-equity ratio improved to 0.74, a meaningful decline from 1.0 one year prior and 1.65 two years earlier.
Understanding the Margin Dynamics
A key driver behind the stock decline centered on gross margin contraction. Consolidated gross margin decreased 230 basis points year-over-year to 77.1%, with additional compression to approximately 74% anticipated in Q3.
However, the underlying cause is crucial to understand. AI semiconductors generate lower gross margins compared to software products. As AI represents an increasingly larger portion of Broadcom’s total revenue, consolidated margins will naturally face downward pressure. This reflects a revenue composition shift rather than deteriorating profitability fundamentals.
Operating margin presents a more encouraging picture: hitting a record 67.3% in Q2, with leadership forecasting approximately 67% maintenance in Q3.
Infrastructure software revenue demonstrated resilience as well, generating $7.2 billion in Q2, up 9% year-over-year, with gross margins approaching 93%.
HSBC Elevates Price Target to $600
On June 2, HSBC analyst Frank Lee increased his AVGO price target to $600 from $450, maintaining a Buy recommendation. Lee highlighted accelerating ASIC revenue momentum expected throughout the latter half of FY2026 and extending into FY2027.
He emphasized that Broadcom will provide Google’s TPU v7, which commands a higher price point than its predecessor v6. Meta is simultaneously scaling its proprietary ASIC deployment. Both Anthropic and OpenAI have been secured under multi-year contracts scheduled to commence in FY2026 and FY2027.
HSBC currently projects Broadcom’s ASIC revenue at $46 billion for FY2026 and $100.2 billion for FY2027 — figures that exceed Street consensus by 23% and 26%, respectively.
Worries about Broadcom potentially losing Google’s TPU business by 2028 were also dispelled. HSBC referenced a supply agreement between both companies extending through 2031.
Regarding valuation metrics, AVGO currently trades at approximately 37.1x forward earnings. By comparison, Marvell commands 65.3x and AMD trades at 62.5x.
TipRanks data reveals a Strong Buy consensus derived from 27 analyst assessments over the previous three months: 24 Buy ratings, 3 Hold ratings, and zero Sell recommendations. The average 12-month price target is positioned at $512.88.
