Key Takeaways
- Broadcom’s Q2 adjusted earnings per share reached $2.44, surpassing Wall Street’s $2.40 forecast, while revenue surged 48% to $22.19 billion
- The company’s AI-related revenue soared to $10.8 billion, marking a 143% increase compared to last year
- Shares declined 6.1% during after-hours trading following guidance that failed to meet investor expectations
- Management’s Q3 revenue projection of $29.4 billion exceeded analyst consensus of $28.25 billion, but the margin wasn’t sufficient
- CEO Hock Tan anticipates AI semiconductor revenue will surpass $16 billion in Q3, representing year-over-year growth exceeding 200%
Despite posting impressive quarterly earnings on Wednesday, Broadcom (AVGO) couldn’t escape a sell-off. Shares plummeted 6.1% in extended trading after finishing the regular session down 0.5% at $479.23.
On the surface, the performance metrics looked solid. The company’s adjusted earnings per share of $2.44 exceeded Wall Street’s $2.40 projection. Revenue climbed 48% year-over-year to reach $22.19 billion, slightly topping the $22.13 billion consensus forecast.
The artificial intelligence segment stole the spotlight. For the quarter ending May 3, Broadcom generated $10.8 billion in AI-driven revenue, representing a 143% jump from the corresponding period in 2024. This figure exceeded the company’s own projections.
The semiconductor solutions division generated $15 billion during the quarter, marking a 79% year-over-year increase and beating analyst expectations of $14.72 billion. Meanwhile, infrastructure software contributed $7.2 billion, showing 9% growth.
The company produced $10.3 billion in free cash flow, accounting for 46% of total revenue. Cash reserves expanded to $19.6 billion by quarter’s end, compared to $14.2 billion in the previous quarter.
Market Reaction: Why Strong Numbers Weren’t Enough
For the upcoming third quarter, Broadcom projected revenue of roughly $29.4 billion — representing approximately 84% year-over-year expansion. While this forecast surpassed analyst predictions of $28.25 billion, market participants were evidently anticipating a more substantial beat.
In the earnings statement, CEO Hock Tan projected AI semiconductor revenue would climb over 200% year-over-year in Q3 to hit $16 billion. “The momentum continues,” he noted.
Given the accelerating growth trajectory already underway, investors likely expected a wider margin between guidance and expectations.
The stock had climbed 4.7% on Tuesday following Alphabet’s announcement of an $80 billion equity sale to finance AI infrastructure investments. Broadcom manufactures specialized AI processors for Alphabet, including eight successive generations of Google’s Tensor Processing Unit. This partnership has spanned a decade.
Currently, Broadcom develops custom AI chips for six major customers, including Alphabet and OpenAI. The company has set an ambitious target of $100 billion in AI chip revenue by 2027.
The Shifting Revenue Mix: Software Loses Ground
Broadcom’s software division, assembled through strategic acquisitions prior to the AI surge, was originally intended to balance the cyclical nature of semiconductor sales. A year ago, software accounted for 42% of overall revenue. Projections indicate this proportion will shrink to approximately 20% next year as AI chip sales accelerate.
Despite this shift, analysts still forecast around 11% growth in software revenue for the second quarter.
HSBC recently upgraded its price target for Broadcom from $450 to $600 while maintaining a Buy recommendation. The firm pointed to anticipated ASIC revenue expansion in the latter half of fiscal 2026, fueled by partnerships with Google, Meta, Anthropic, and OpenAI.
The company also announced a quarterly dividend of $0.65 per share, scheduled for payment on June 30, 2026. Broadcom has consistently increased its dividend for 16 straight years.
With a market capitalization of $2.29 trillion, the stock appears overvalued according to InvestingPro’s Fair Value assessment.
