Key Takeaways
- Broadcom posted Q2 adjusted earnings per share of $2.44, surpassing analyst expectations of $2.40, while revenue jumped 48% to $22.19 billion
- The company’s AI-related revenue reached $10.8 billion in Q2, representing a 143% year-over-year increase
- Shares declined 6.1% in extended trading despite the strong quarterly performance
- The company’s Q3 revenue projection of $29.4 billion exceeded Wall Street’s $28.25 billion estimate, but fell short of elevated investor expectations
- CEO Hock Tan anticipates AI semiconductor revenue will surpass $16 billion in Q3, marking growth of more than 200% versus last year
Broadcom (AVGO) reported impressive quarterly financial results on Wednesday evening, yet the market response was decidedly negative. Shares tumbled 6.1% during after-hours trading following a 0.5% decline to $479.23 in the regular session.
The financial performance itself was undeniably robust. The company reported adjusted earnings per share of $2.44, comfortably exceeding Wall Street’s consensus forecast of $2.40. Total revenue climbed 48% compared to the prior year period, reaching $22.19 billion and narrowly topping analyst projections of $22.13 billion.
The artificial intelligence segment proved to be the highlight of the quarter. For the period ending May 3, Broadcom generated $10.8 billion in AI-driven revenue, representing a remarkable 143% surge from the comparable quarter last year. This figure actually exceeded the company’s own internal projections.
The semiconductor solutions division generated $15 billion in quarterly revenue, reflecting 79% year-over-year growth and surpassing analyst forecasts of $14.72 billion. Meanwhile, the infrastructure software business contributed $7.2 billion, marking a 9% increase.
Broadcom produced $10.3 billion in free cash flow during the quarter, which represented 46% of total revenue. The company’s cash position strengthened to $19.6 billion at quarter-end, up from $14.2 billion in the previous quarter.
Market Reacts Negatively Despite Outlook Beat
Looking ahead to Q3, Broadcom projected revenue of roughly $29.4 billion — representing approximately 84% growth year-over-year. While this forecast exceeded the analyst consensus of $28.25 billion, it apparently wasn’t enough to satisfy investor appetite.
According to CEO Hock Tan, AI semiconductor revenue is projected to experience more than 200% year-over-year expansion in Q3, climbing to $16 billion. “The momentum continues,” Tan stated in the company’s earnings announcement.
The market’s disappointment likely stems from expectations for an even more substantial guidance beat, given the accelerating growth trajectory already underway.
Shares had rallied 4.7% on Tuesday after Alphabet disclosed plans for an $80 billion equity offering to finance AI infrastructure investments. Broadcom manufactures specialized AI processors for Alphabet, including eight generations of Google’s Tensor Processing Unit. This partnership has now spanned a full decade.
Currently, Broadcom develops custom AI chips for six major clients, including Alphabet and OpenAI. The company has set an ambitious target of $100 billion in AI chip revenue by 2027.
Software Division’s Relative Influence Declining
Broadcom’s software business, assembled through strategic acquisitions before the current AI revolution, was originally intended to provide stability against the cyclical semiconductor market. In the previous year, software accounted for 42% of total company revenue. However, projections suggest this percentage will shrink to approximately 20% next year as explosive AI chip growth dominates the revenue mix.
Despite this shift, analysts still forecast roughly 11% revenue growth for the software segment in Q2.
HSBC recently upgraded its price target for Broadcom to $600 from $450, maintaining its Buy recommendation. The investment bank pointed to anticipated ASIC revenue acceleration in the latter half of fiscal 2026, fueled by partnerships with Google, Meta, Anthropic, and OpenAI.
The company also announced a quarterly cash dividend of $0.65 per share, scheduled for payment on June 30, 2026. Broadcom has now increased its dividend for 16 straight years.
With a market capitalization of $2.29 trillion, Broadcom trades at levels that InvestingPro analysis suggests may be overvalued compared to the stock’s Fair Value calculation.
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