Broadcom Inc. (AVGO) saw its stock drop sharply in premarket trading Thursday after the company's fiscal second-quarter results and AI-chip outlook disappointed investors who had expected even stronger guidance. Shares were last indicated at $425.75, down 11.2% from Wednesday's close of $479.23.
Record Revenue but Missed Expectations
The chipmaker reported a 48% year-over-year increase in Q2 revenue to $22.19 billion, a new record. Net income came in at $9.31 billion, with adjusted earnings of $2.44 per share. Free cash flow for the quarter reached $10.26 billion. However, revenue fell short of the $22.27 billion consensus estimate from LSEG, according to Reuters.
AI Outlook Falls Short
The primary catalyst for the selloff was Broadcom's AI-chip revenue forecast for the third quarter. The company guided for $16 billion in AI-chip revenue, below the $16.36 billion analysts had expected, based on Visible Alpha data. While CEO Hock Tan raised the 2027 AI chip shipment target to over 10 gigawatts, he did not increase Broadcom's long-term $100 billion chip sales target. This decision disappointed traders who had bid the stock to a record high earlier this week.
“Nothing slows down what was estimated prior — they just didn’t raise it,” said Ben Bajarin, chief executive at Creative Strategies. Ryan Lee, senior vice president at Direxion, noted that “the market demands perfection.”
Market Context
Broadcom's results come amid heightened scrutiny of AI-related stocks, with investors closely watching whether major cloud companies will continue to invest heavily in custom AI accelerators. These chips, designed for specific machine-learning tasks, are a key growth driver for Broadcom. The broader market ended lower Wednesday, with the Dow down 1.21%, the S&P 500 off 0.74%, and the Nasdaq slipping 0.89%. Chip stocks, however, gained 1.4% on the day.
Ross Mayfield, investment strategy analyst at Baird, commented that AI stocks seemed to be “trading in their own completely separate world,” but that narrative was tested after Broadcom's numbers were released post-close.
Competitive Landscape
Nvidia's GPUs remain the primary choice for most AI models, while Marvell Technology is betting big on custom chips, projecting that business could generate over $10 billion by 2029. Broadcom sits in between, selling custom silicon and networking gear to major cloud and AI clients. The company's infrastructure software revenue rose 9% to $7.18 billion, representing about a third of quarterly sales, but the stock's focus remains on AI chips, which now drive valuation moves.
Risks Ahead
Broadcom faces several risks, including customer concentration, timing of demand, reliance on suppliers, trade issues, and chip cycles. If cloud buyers hold off or change chip plans, or if supply and trade pressures worsen, AI sales could miss the targets investors have priced in.
Despite the strong growth, the market's reaction underscores that even robust results may not be enough for AI chip leaders in the current environment. Regular trading is expected to open with significant volatility.
