Key Takeaways
- Broadcom’s Q2 adjusted EPS reached $2.44, surpassing analyst expectations of $2.40, while revenue climbed 48% to $22.19 billion
- The company generated $10.8 billion from AI-related products in Q2, marking a 143% year-over-year increase
- Shares declined 6.1% in extended trading despite beating estimates on both top and bottom lines
- Management’s Q3 revenue forecast of $29.4 billion exceeded Wall Street’s $28.25 billion projection, but fell short of investor expectations
- CEO Hock Tan anticipates AI semiconductor sales will surpass $16 billion in Q3, representing over 200% growth year-over-year
Broadcom (AVGO) reported impressive quarterly earnings on Wednesday, yet the market reaction told a different story. After declining 0.5% during regular hours to close at $479.23, shares plunged an additional 6.1% in after-hours trading.
The financial performance itself was robust. The company’s adjusted earnings per share of $2.44 exceeded analyst projections of $2.40. Total revenue surged 48% compared to the previous year, reaching $22.19 billion and narrowly beating the Street’s $22.13 billion estimate.
The artificial intelligence segment stole the spotlight. For the quarter ending May 3, Broadcom generated $10.8 billion from AI-related products, representing a 143% jump from the comparable period last year. This figure exceeded the company’s own projections.
The semiconductor solutions division contributed $15 billion in quarterly revenue, marking a 79% year-over-year increase and beating analyst forecasts of $14.72 billion. Meanwhile, the infrastructure software business generated $7.2 billion, representing 9% growth.
The company produced $10.3 billion in free cash flow, equal to 46% of total revenue. Broadcom’s cash position strengthened to $19.6 billion at quarter-end, up from $14.2 billion in the previous quarter.
Market Reaction: Strong Numbers, Weak Outlook
Looking ahead to Q3, Broadcom projected revenue of roughly $29.4 billion — representing approximately 84% year-over-year growth. While this forecast exceeded the analyst consensus of $28.25 billion, it apparently wasn’t enough to satisfy investor appetite.
CEO Hock Tan projected that AI semiconductor revenue will expand by more than 200% year-over-year in Q3, hitting $16 billion. “The momentum continues,” he stated in the company’s earnings announcement.
The market appeared to be pricing in a more substantial guidance beat, given the accelerating growth trajectory already evident in the business.
Shares had rallied 4.7% on Tuesday following news that Alphabet plans to raise $80 billion through an equity offering to finance AI infrastructure investments. Broadcom maintains a strategic partnership with Alphabet, having designed custom AI processors including eight generations of Google’s Tensor Processing Unit over their decade-long collaboration.
Currently, Broadcom develops specialized AI chips for six major customers, including Alphabet and OpenAI. The company has set an ambitious goal of reaching $100 billion in AI chip revenue by 2027.
Software Division Losing Ground to AI Chips
Broadcom’s software business, assembled through strategic acquisitions before the AI explosion, was originally intended to provide stability against cyclical semiconductor demand. In the previous year, software accounted for 42% of total revenue. By next year, analysts expect that proportion to shrink to approximately 20% as AI chip sales accelerate.
Analysts still forecast around 11% growth for the software segment in Q2.
HSBC recently upgraded its price target on Broadcom to $600 from $450, maintaining a Buy recommendation. The investment bank 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 consecutively increased its dividend for 16 years.
With a market capitalization of $2.29 trillion, InvestingPro’s valuation analysis indicates the stock may be trading above its Fair Value estimate.
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