Key Takeaways
- Broadcom’s Q3 revenue jumped 86% to $29.59 billion, surpassing Wall Street’s $29.43 billion forecast
- AI chip sales skyrocketed 221% to $16.7 billion, with Q4 projections at $21.7 billion (236% year-over-year increase)
- The company elevated its FY2027 AI chip revenue target to $115 billion and reaffirmed $230 billion for FY2028
- Fourth-quarter revenue outlook of $34.8 billion fell short of the $35 billion consensus, triggering the stock decline
- AVGO dropped approximately 2.2% in Thursday’s premarket session; Wall Street maintains a Strong Buy consensus with a $505.38 average target
Broadcom (AVGO) delivered impressive fiscal third-quarter results on Wednesday evening, yet shares declined nonetheless. AVGO traded down roughly 2.2% in Thursday’s premarket session, following volatile swings during extended trading Wednesday.
The top-line figures looked impressive. Third-quarter revenue reached $29.59 billion, marking an 86% year-over-year increase and topping Wall Street’s $29.43 billion projection. Adjusted earnings per share of $3.32 exceeded forecasts ranging from $3.22 to $3.24, nearly doubling the $1.69 reported in the prior-year period.
The AI chip segment delivered exceptional performance. Sales surged 221% year-over-year to $16.7 billion, exceeding both internal guidance and analyst consensus. Management projects this figure will reach $21.7 billion in Q4, representing 236% year-over-year expansion.
Extended AI Revenue Targets Elevated
The semiconductor giant also boosted its extended-term projections. Management now anticipates $115 billion in AI chip revenue for fiscal 2027, up from the previous estimate exceeding $100 billion. The company then forecasts approximately doubling that figure to around $230 billion in fiscal 2028.
Chief Executive Hock Tan noted that current demand is exceeding the company’s supply chain capabilities, lending credibility to these ambitious projections.
During the previous quarter, Broadcom maintained its FY2027 AI guidance at $100 billion and shares tumbled. This time, even the upgraded outlook couldn’t prevent the decline.
Why Shares Declined Despite Strong Results
The culprit was fourth-quarter guidance. Management expects revenue of $34.8 billion, representing 93% year-over-year growth, but falling slightly below the approximately $35 billion consensus estimate. Adjusted operating margin guidance also disappointed marginally at 66% versus expectations of 66.5%.
This modest shortfall proved sufficient to eclipse the impressive AI performance.
The stock is also dealing with recent headwinds. AVGO has declined approximately 26% from its June all-time peak. A quarterly regulatory filing disclosed that Broadcom could face up to $29 billion in lease commitments related to a data center fund established by Apollo and Blackstone, raising questions about the demand narrative.
Additionally, Google announced a partnership with Marvell in August to develop chips for portions of its AI infrastructure. While Broadcom renewed its TPU agreement with Google in April, Marvell will now manage other chip development, potentially reducing a future revenue stream for Broadcom.
Broadcom develops customized AI accelerators for Google Cloud, Meta Platforms, and OpenAI. Google represents its largest and longest-standing client.
On a year-to-date basis, AVGO has gained 6.5%. Mizuho analyst Vijay Rakesh maintained his Buy recommendation and $530 target following the earnings release, forecasting AI revenue of $129 billion in FY2027 and $235 billion in FY2028. The average analyst price target on TipRanks stands at $505.38, suggesting 37.6% upside potential.
The consensus recommendation is Strong Buy, comprised of 23 Buy ratings and three Hold ratings.
Broadcom’s current forward price-to-earnings ratio of 18.8x sits marginally above the S&P 500, a significant departure from the premium valuation multiple it commanded earlier in the year.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
