Broadcom’s stock price (AVGO) sits down at $419 following earnings, despite record revenue, and analysts raising price targets on the stock. So what is going on?
Broadcom reported a blockbuster fiscal second quarter with record revenue and surging artificial intelligence chip sales, yet shares are down 12.6% into the pre-market trading session, as markets punished the chipmaker for failing to raise its long-term AI revenue targets or announce new marquee customer wins.
The sell-off triggered sympathetic declines across Asian chip and AI stocks the following session, underscoring Broadcom’s emerging role as a bellwether for AI hardware sentiment. Shares had rallied 37.86% year-to-date heading into the print, signalling crowded positioning ahead of results.
Expectations Elevated Into the Print
Broadcom delivered fiscal second-quarter 2026 results that exceeded most conventional benchmarks.
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Revenue climbed 48% year-over-year to $22.2 billion, driven by explosive growth in AI semiconductors. The company’s AI chip business generated $10.8 billion in revenue, representing a 143% increase from the prior year, as demand for custom AI accelerators and high-speed networking chips from hyperscale cloud providers continued to accelerate.
Free cash flow surpassed $10 billion for the quarter, another record, whilst non-AI semiconductor revenue rose in the mid-single digits, indicating cyclical recovery in traditional chip markets. Infrastructure software, anchored by the VMware acquisition, contributed approximately $7.2 billion in revenue, up roughly 9% year-over-year but growing more slowly than the semiconductor segment.
For the fiscal third quarter, management guided revenue to approximately $29.4 billion, representing an 84% year-over-year increase. The company expects AI semiconductor revenue to grow more than 200% year-over-year to around $16 billion in the coming quarter.
Guidance Raise That Didn’t Come
The market’s negative reaction centred on what Broadcom did not deliver rather than what it achieved. Chief Executive Hock Tan reiterated the company’s target of generating more than $100 billion in AI semiconductor revenue by 2027 but crucially did not raise that figure.
Markets had grown accustomed to Broadcom pushing its AI narrative forward with upward revisions and new hyperscaler partnerships, making the unchanged guidance a disappointment for a stock priced for continuous upside surprises.
The software segment also drew scrutiny. Whilst growing, VMware and related infrastructure software businesses expanded at a more modest pace than the booming AI chip operations, raising questions about integration execution and pricing strategy in that division.
Analysts Raise Despite Price Action
Price Targets
Despite the post-earnings dive, Wall Street’s analyst community largely maintained its constructive stance on Broadcom’s fundamental story.
Jefferies analyst Blayne Curtis raised his price target to $550 from $500 after the results and kept a Buy rating on the shares, framing the sell-off as a valuation reset rather than a breakdown in the AI thesis. His move underscored the view that Broadcom remains one of the clearest non-Nvidia avenues for investing in custom AI chip buildout.
Wells Fargo had already lifted its target to $545 from $430 in May, citing stronger demand assumptions for Broadcom’s AI chip business. Susquehanna’s Christopher Rolland similarly raised his target to $490 from $450 ahead of the results and maintained a positive rating.
So What Now?
The double digit decline in Broadcom shares post-earnings highlights the challenge facing mega-cap AI winners that have already delivered extraordinary returns. When a stock has run up like Broadcom has on a structural theme, it requires continuous upward revisions to sustain elevated multiples. A quarter that is merely strong can trigger sharp corrections if it fails to exceed aggressive whisper numbers.
From a fundamental perspective, Broadcom’s AI revenue trajectory remains intact. The company continues to benefit from hyperscaler demand for custom ASICs, high-speed SerDes interconnects, and networking silicon that underpin large-scale AI training and inference infrastructure. The reaffirmed $100 billion AI revenue target for 2027 still implies substantial growth from current levels, even if markets wanted more.
Broadcom’s earnings reaction ultimately reflects the market’s need for fresh catalysts in a stock that has already delivered extraordinary returns, leaving the shares vulnerable to air pockets despite a business that continues to fire on most cylinders. Guidance has once again proven to hold the keys to price action, with past earnings too backward looking to outweigh the future.
Bull Case:
- AI semiconductor revenue up 143% year-over-year with 200%-plus growth expected next quarter
- Long-term $100 billion AI revenue target for 2027 reaffirmed, not reduced or withdrawn
- Free cash flow exceeded $10 billion, demonstrating robust operational execution and profitability
- Major analysts raised price targets post-earnings, signalling confidence in fundamental AI thesis
- Diversified revenue base with non-AI chips recovering and software providing stable cash flows
- Valuation reset creates potential entry point for long-term investors in structural AI trend
Bear Case:
- Stock failed to deliver incremental upside surprise, triggering multiple compression after parabolic run
- No raise to 2027 AI target suggests easily visible upside already priced in
- Software segment growth modest compared to AI chips, raising integration and execution concerns
- Crowded positioning and elevated expectations make stock vulnerable to further profit-taking volatility
- Future quarters require perfection to sustain current valuation multiples in mega-cap name
- Sector-wide de-risking could pressure shares even if Broadcom fundamentals remain solid
