Broadcom dips 14% after earnings as AI chip sales surge 143%

Broadcom reported Q2 revenue of $22.2B, up 48% year over year, as AI chip sales more than doubled to $10.8B.

"We expect this momentum to continue into fiscal year 2027 and reiterate our AI semiconductor revenue guidance to be in excess of $100 billion," Chief Executive Officer Hock Tan said.

The company's non-GAAP earnings per share climbed 54%, while free cash flow reached $10.3B, or 46% of revenue. Broadcom guided for fiscal third-quarter AI semiconductor revenue of $16B, representing growth of more than 200% year over year. AI-related sales now account for nearly half of total revenue, up from about one-third in the prior quarter. Total revenue growth accelerated to 48% from 29% in the prior quarter. The networking and custom chip business drove the acceleration, with hyperscaler customers expanding deployments of AI accelerators.

The stock fell about 14% last week to $396.60, paring its year-to-date gain to about 15%. The selloff erased roughly $286B in market value, driven by what some traders viewed as light Q3 guidance relative to elevated expectations.

The infrastructure software unit, anchored by VMware, contributed $7.2B in revenue. Broadcom's trailing price-to-earnings multiple stands at about 64, down from above 70 before the release. The stock's post-earnings decline pushed its forward multiple to about 34x, near the lowest level since the company closed its VMware acquisition.

Mizuho told clients to buy the dip, projecting a $600B-plus revenue opportunity from Google's TPU buildout by 2028. Bank of America maintained a $530 price target, citing the 48% revenue increase. Of 44 analysts covering the stock, all rate it a buy and none recommend selling, according to data compiled by 24/7 Wall St. The consensus price target of about $504 implies 27% upside from current levels.

The selloff contrasts with the underlying results. Broadcom has now beaten earnings-per-share estimates for eight consecutive quarters. The Q3 AI guidance of $16B implies sequential growth from the current quarter's $10.8B, reflecting accelerating demand from hyperscale cloud customers including Google, Meta and Microsoft. Rival Marvell Technology, which also designs custom AI chips, saw its shares surge 32% in a single session this month after Nvidia's CEO singled it out as a potential trillion-dollar company, before giving back some gains.

The sell-off in Broadcom mirrors a broader pattern in AI infrastructure stocks, where strong results are met with profit-taking as investors debate whether spending has peaked. Nvidia, the largest beneficiary of AI chip demand, has also seen increased volatility despite reporting triple-digit revenue growth. Broadcom's exposure to custom chip designs for individual hyperscalers differentiates it from Nvidia's general-purpose GPU model, giving it a distinct growth trajectory tied to each customer's buildout cycle.

The guidance raise indicates management expects AI infrastructure demand to accelerate through fiscal 2027. Investors will watch the Q3 earnings call for updated segment margins and any shift in hyperscaler concentration risk.

This article is for informational purposes only and does not constitute investment advice.