Broadcom Inc. (AVGO) shares continued their decline in premarket trading on Friday, adding to a steep drop from the previous session after the company's AI chip sales outlook fell short of bullish investor expectations. The stock was last seen at $410.95 ahead of the opening bell, down 1.9% from Thursday's close of $418.91.
On Thursday, Broadcom shares plunged 12.6% after the company reported fiscal second-quarter revenue of $22.19 billion, just below the consensus estimate of $22.27 billion. The miss weighed on the broader market, with the Nasdaq Composite slipping 0.09%, while the Dow Jones Industrial Average added 1.73% and the S&P 500 rose 0.41%.
Despite the market's disappointment, Broadcom's quarterly results were not weak by normal standards. The company reported a 48% year-over-year jump in revenue to $22.187 billion, while non-GAAP diluted earnings per share climbed 54% to $2.44. These non-GAAP figures exclude certain costs and are intended to reflect profit from regular operations.
The key source of investor concern was Broadcom's guidance for AI chip revenue in the third quarter. The company forecast $16 billion in AI chip sales, falling just short of Visible Alpha's estimate of $16.36 billion. CEO Hock Tan did not raise the company's long-term AI chip sales target of $100 billion, as some investors had hoped.
"Nothing slows down what was estimated prior — they just didn't raise it," said Ben Bajarin, chief executive of technology consultancy Creative Strategies, in an interview with Reuters. Ryan Lee, senior vice president of product and strategy at Direxion, noted that the market "demands perfection" from chip stocks.
Broadcom's core AI business continues to show strong momentum. CEO Tan reported that AI semiconductor sales reached $10.8 billion in the quarter, up 143% from a year earlier, driven by higher demand for custom AI accelerators and AI networking. These accelerators are specialized chips designed for specific AI tasks rather than general computing.
CFO Kirsten Spears told analysts that consolidated revenue is on track to jump 84% year over year in the third quarter, landing near $29.4 billion. She also said the company expects to maintain its non-GAAP operating margin around 67%. Operating margin measures the portion of revenue remaining after paying operating costs.
Competition in the AI chip market remains intense. Nvidia's GPUs continue to set the pace for most AI workloads, but Marvell Technology is moving deeper into custom chips aimed at large cloud firms. Marvell has told Reuters it expects its custom-chip business to generate more than $10 billion in revenue by 2029.
Wall Street analysts offered mixed views on Broadcom's outlook. DA Davidson's Gil Luria said the small revenue beat and forecast did not meet high investor expectations. JPMorgan's Harlan Sur pointed to growing AI bookings, saying they continue to push revenue visibility higher, according to Benzinga. Some analysts flagged risks: Kevin Cassidy at Rosenblatt said that repeating the fiscal 2027 AI outlook might "intensify investor concerns" about losing market share. Cantor Fitzgerald's C.J. Muse called the results "disappointing" and highlighted a gross-margin forecast that missed consensus.
Broadcom's latest filing noted risks including reliance on large customers, supply chain pressures, contract manufacturing, maintaining or growing gross margin, and competition in semiconductor solutions. These factors will be key to whether Broadcom's AI growth can continue without hurting margins or losing market share.
The regular trading session on Friday will be the next test for Broadcom shares. In Asia, technology stocks fell further following Broadcom's miss, according to Reuters. Bob Savage, BNY's head of markets macro strategy, said the "AI-led equity rally" is running out of steam.
