Key Takeaways
- Broadcom shares have declined approximately 24% from their peak near $495.
- The company delivered record Q2 results with $22.2B in revenue and AI chip sales jumping 143% annually to $10.8B.
- Q3 AI semiconductor forecast of roughly $16B fell short of Wall Street’s $17B+ expectations, sparking the decline.
- CEO Hock Tan maintained the fiscal 2027 AI chip revenue target above $100B without increasing it, which concerned investors.
- Wall Street analysts stay positive — JPMorgan reaffirmed its Overweight stance with a $580 target price.
Broadcom delivered what would typically be celebrated as a stellar fiscal second quarter. Year-over-year revenue climbed 48% to reach $22.2 billion. The company posted adjusted earnings of $2.44 per share. AI semiconductor sales exploded 143% higher to $10.8 billion. Yet the stock tumbled 24% from its record peak regardless.
This paradox reveals just how elevated market expectations had become.
The sharp decline wasn’t triggered by weak performance. Rather, it stemmed from forward guidance that fell slightly below what an optimistic market had anticipated. Broadcom projected approximately $16 billion in AI chip revenue for its fiscal third quarter. While this represents more than triple the prior-year amount, market participants had positioned for $17 billion or higher.
The additional disappointment came when CEO Hock Tan chose not to increase the company’s longer-term AI semiconductor forecast. He maintained the current projection of exceeding $100 billion in AI chip revenue by fiscal 2027. In today’s momentum-driven environment, maintaining guidance was interpreted negatively.
Trading volumes surged dramatically during the selloff. This represented an abrupt revaluation rather than gradual sentiment shift.
The Underlying Business Fundamentals
There’s an important discrepancy worth examining. Broadcom delivered $10.8 billion worth of AI chips during the quarter. However, Tan revealed that AI semiconductor bookings exceeded $30 billion in that identical period. Customers are placing orders at nearly three times the current production capacity. This indicates robust, not weakening, demand.
Tan characterized demand for XPUs and networking equipment as “simply insatiable.” The semiconductor giant has secured gigawatt-scale agreements with major players including Anthropic, OpenAI, and Meta, projecting shipments surpassing 10 gigawatts of AI chips by 2027.
On June 24, Broadcom and OpenAI unveiled their inaugural collaborative custom AI chip, dubbed the Jalapeño. Designed explicitly for inference workloads, it’s currently operational in development environments utilizing OpenAI’s GPT-5.3-Codex-Spark model. Tan informed Reuters that the chip competes effectively with Nvidia’s Blackwell GPUs and Google’s TPU offerings. OpenAI intends to deploy it commercially before year-end.
Wall Street’s Current Perspective
Sell-side analysts aren’t backing away from their bullish stance. JPMorgan maintained its Overweight rating alongside a $580 price target following the decline, advising clients they would be “aggressive buyers” at prevailing levels.
The overall analyst consensus remains decidedly optimistic — the overwhelming majority maintain Buy ratings, with consensus price targets still exceeding $500.
Legitimate concerns do exist. CFO Kirsten Spears has highlighted potential margin compression as AI revenue grows proportionally larger within Broadcom’s business mix, since certain AI system sales generate lower margins compared to the software division. Tan has also acknowledged that Google may eventually broaden its TPU supplier base, though Broadcom remains integral to Google’s semiconductor strategy.
The selloff rippled through the broader semiconductor space. Nvidia, AMD, Marvell, Intel, and Micron all experienced pressure in subsequent trading sessions, as market participants recalibrated AI-related valuations sector-wide.
Broadcom’s Q3 AI chip guidance of approximately $16 billion, though below analyst expectations, would still mark a tripling compared to the same period last year.
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