Key Takeaways
- AVGO shares declined more than 5% in extended trading even as AI revenue jumped 221% year over year, reaching $16.7 billion
- Fiscal Q3 revenue climbed 86% to $29.59 billion, surpassing analyst forecasts, while adjusted EPS hit $3.32 versus the $3.23 estimate
- Fourth quarter revenue guidance of $34.8 billion fell short of the $35.03 billion Wall Street consensus
- The company elevated its fiscal 2027 AI revenue target to approximately $115 billion from $100 billion, though some market participants anticipated $150 billion or higher
- Competitive pressures in custom chip design are intensifying, with reports suggesting Google has broadened its partnership with competitor Marvell
Broadcom delivered results that would typically be celebrated as exceptional. Yet investors responded by sending shares lower.
The semiconductor company’s stock retreated more than 5% during Wednesday’s after-hours session following its fiscal third-quarter earnings release. AVGO traded near $361.74 in overnight activity, down from its regular session close of $367.24.
The company’s AI chip segment generated $16.7 billion in revenue, representing a 221% increase compared to the same period last year and a 54% jump from the previous quarter. Overall revenue surged 86% annually to $29.59 billion, exceeding the $29.45 billion analyst projection. The company’s adjusted earnings per share registered at $3.32, beating the consensus estimate of $3.23.
These figures would typically signal robust performance. However, Wall Street had anticipated even more dramatic results.
StoneX analyst Cody Acree, who maintains a Buy rating, explained the situation succinctly: the earnings beat proved insufficient to satisfy investor appetite. He referenced the benchmark Nvidia has established, noting that Broadcom’s approximately $300 million revenue outperformance appeared underwhelming relative to Nvidia’s recent stellar results.
“The magnitude is just not quite enough,” Acree explained to Yahoo Finance.
Future Projections Underwhelm
The company’s forward-looking statements intensified investor concerns. Broadcom issued Q4 total revenue guidance of roughly $34.8 billion, trailing the $35.03 billion analyst consensus compiled by LSEG. The company projected Q4 AI semiconductor revenue at $21.7 billion, representing a 236% annual increase, yet market participants sought higher numbers.
Chief Executive Hock Tan did enhance the company’s longer-term forecast. The chipmaker now anticipates approximately $115 billion in AI semiconductor revenue for fiscal 2027, representing an increase from its previous $100 billion projection, with expectations to potentially double that figure to $230 billion by fiscal 2028.
The challenge is that Morgan Stanley had previously modeled $120 billion for fiscal 2027 ahead of this announcement, while certain investor projections had climbed beyond $150 billion. Consequently, even an upgraded forecast came in beneath where segments of the market had positioned themselves.
Competitive Landscape Shifts
The share price decline wasn’t solely attributable to elevated expectations. The company also confronts mounting competitive challenges in the custom silicon market. Reports indicate Google has broadened its chip design collaboration with Marvell, prompting questions about Broadcom’s ability to retain future accelerator business.
JPMorgan analyst Harlan Sur contended prior to the earnings announcement that worries regarding Broadcom’s Google partnership were exaggerated, highlighting the company’s established track record and participation in upcoming TPU iterations. BMO analyst Harsh Kumar has positioned Broadcom as the second-leading AI chip provider behind only Nvidia.
AI semiconductors and networking solutions currently represent more than half of Broadcom’s overall chip revenue, which totaled $20.84 billion during the quarter.
For the year to date, AVGO has advanced 6%, trailing Nvidia’s 20% appreciation.
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