Key Takeaways
- Broadcom delivered record Q2 revenue of $22.2 billion, representing 48% annual growth, while AI semiconductor revenue soared 143% to reach $10.8 billion
- The company’s Q3 AI revenue forecast of approximately $16 billion fell short of some analyst projections, sparking a selloff that pushed shares down over 20% from the recent peak of $495
- Q2 operating margin climbed to an all-time high of 67.3%, with management projecting approximately 67% for the upcoming quarter
- HSBC elevated its AVGO price target to $600 while reaffirming its Buy recommendation, highlighting ASIC revenue expansion and long-term partnerships with Google, Meta, Anthropic, and OpenAI
- Analyst consensus on TipRanks remains Strong Buy, with a mean 12-month target price of $512.88, suggesting approximately 29% potential upside from today’s $396.60 level
Broadcom unveiled impressive Q2 financial results last week, yet the market response was surprisingly negative. The company’s AI revenue projection for Q3 fell marginally below certain Wall Street forecasts, triggering a sharp decline that erased more than 20% of AVGO’s value from its peak of $495. Shares currently hover around $396.60.
It’s important to note: the outlook wasn’t weak by any measure. Leadership projected approximately $16 billion in AI semiconductor revenue for Q3 — representing year-over-year growth exceeding 200% — while reaffirming the company’s goal of surpassing $100 billion in AI revenue by Fiscal 2027. The market had simply priced in even more aggressive numbers.
Second-quarter revenue reached an unprecedented $22.2 billion, marking 48% year-over-year expansion. AI semiconductor revenue by itself surged 143% to $10.8 billion. AI bookings exceeded $30 billion during the period.
Free cash flow achieved a record $10.3 billion, representing 46% of total revenue. The company’s leverage ratio improved to 0.74, compared to 1.0 in the prior year and 1.65 two years earlier.
Understanding the Margin Dynamics
A key factor driving the selloff involved gross margin contraction. Consolidated gross margin decreased 230 basis points year-over-year to 77.1%, with expectations for a further decline to approximately 74% in Q3.
However, context is crucial here. AI semiconductors generate lower gross margins compared to software products. As AI constitutes an increasingly larger portion of Broadcom’s total revenue, consolidated margins will naturally face pressure. This represents a product mix evolution, not underlying profitability deterioration.
Operating margin provides a more encouraging perspective: reaching a record 67.3% in Q2, with management forecasting approximately 67% for Q3 as well.
Infrastructure software revenue remained resilient, hitting $7.2 billion in Q2 with 9% year-over-year growth, maintaining gross margins near 93%.
HSBC Boosts Target to $600
On June 2, HSBC analyst Frank Lee increased his price target on AVGO from $450 to $600, maintaining a Buy rating. Lee highlighted ASIC revenue momentum accelerating throughout the second half of FY2026 and extending into FY2027.
He emphasized that Broadcom will provide Google’s TPU v7, which commands a higher average selling price than its predecessor v6. Meta is simultaneously scaling its proprietary ASIC. Anthropic and OpenAI have been secured under multi-year contracts scheduled to commence in FY2026 and FY2027.
HSBC now projects Broadcom’s ASIC revenue at $46 billion for FY2026 and $100.2 billion for FY2027 — exceeding Street consensus by 23% and 26%, respectively.
Worries surrounding Broadcom potentially losing Google’s TPU business in 2028 were also dispelled. HSBC referenced a supply agreement between both companies extending through 2031.
Regarding valuation, AVGO trades at approximately 37.1x forward earnings. This compares favorably to Marvell at 65.3x and AMD at 62.5x.
TipRanks currently displays a Strong Buy consensus rating derived from 27 analyst assessments over the past three months: 24 Buy ratings, 3 Hold ratings, and zero Sell ratings. The average 12-month price target sits at $512.88.
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