Broadcom's Whiplash: Shares Tank After Pre-Earnings Surge

One firm shipped 5 billion parts to SpaceX - and no one knows (From Weiss Ratings)

Shares of semiconductor giant Broadcom (NASDAQ: AVGO) have been red hot in Q2. As of the June 3 close, Broadcom shares were up 55% during the quarter.

At that point, Broadcom was on track to achieve its second-best quarterly performance ever, beat only by a 65% gain in Q2 2025.

However, after the company’s latest earnings report, it appears unlikely that Broadcom will break that record. Shares dropped by approximately 13% in the trading day following Broadcom’s report, falling below $420.

While Broadcom beat estimates across top-line figures, there were some notable cracks in the company’s report that were difficult to overcome, given extremely high expectations.

Broadcom Beats, AI Guidance Falls Short

In its fiscal Q2 2026 report, Broadcom posted revenue of $22.19 billion, an increase of 48% year-over-year (YOY). This slightly exceeded estimates near $22.13 billion. On adjusted earnings per share (EPS), the company posted $2.44, an increase of 54% YOY, and also slightly exceeded estimates of $2.40.

Broadcom's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin came in at 69%. This exceeded the company’s guidance of 68% and analyst expectations of 68.6%.

Broadcom’s artificial intelligence (AI) semiconductor revenue rose massively by 143% YOY to $10.8 billion, and the firm expects growth to accelerate next quarter. In Q3, Broadcom projects AI semiconductor sales of $16 billion, or an increase of 200% YOY.

Despite this monstrous growth expectation, Broadcom’s AI semiconductor guidance was seen to be one of the biggest negatives from the report. Wall Street analysts expected the figure to come in near $17.2 billion.

Nonetheless, Broadcom’s overall guidance for Q3 came in above expectations. The company projects that revenue will grow by 84% YOY to $29.4 billion. This is well above the expected $28.25 billion.

Overall, these numbers were solid—but solid wasn’t what Broadcom needed. In the seven trading days leading up to its report, Broadcom surged over 15%, adding around $300 billion to its market capitalization. This raised the stakes—Broadcom really needed to blow investors away to see its shares gain further. With slight beats during the quarter and a miss on AI semiconductor guidance, Broadcom didn’t clear that elevated bar.

Tan Stays Consistent, Holds Back on 2027 Outlook Boost

Another source of disappointment was Broadcom’s refusal to raise its AI semiconductor guidance for 2027. It continued to guide to more than $100 billion. Investors likely hoped to see this number move higher. Competitor Marvell Technology’s (NASDAQ: MRVL) recent guidance increase was probably a factor that set the stage for this expectation, along with the run-up in AVGO shares.

Amid this, it is important to understand that Broadcom’s management team moves at its own pace—not at the pace markets or analysts want to push it. Broadcom tends to guide conservatively until it has a big announcement to make. CEO Hock Tan has repeatedly pushed back on analyst attempts to get greater visibility into Broadcom’s revenue outlook.

In some cases, Tan has pushed back on these attempts forcefully. During the Q2 call, Tan told JPMorgan analyst Harlan Sur, “We're not trying to guide you every quarter on what 2027 would be like." This is all to say that expecting Broadcom to raise 2027 guidance, especially when two quarters remain in 2026, is somewhat unrealistic. When shares surge into a report, this stance from Broadcom’s management team can clash with the psychology of investors who want blockbuster numbers now.

Additionally, many of Broadcom’s customer relationships are very long-term. Broadcom designs multiple generations of customized AI chips for its partners, which operate on their own timelines. Thus, its revenue may not scale cleanly quarter to quarter—creating the potential for AI semiconductor guidance misses like those seen in Q3.

Tan’s Statements Add Weight to Alphabet Diversification Concerns

Still, statements made around Broadcom’s relationship with Alphabet (NASDAQ: GOOGL) were a bit concerning. Notably, the firms have extended their long-term partnership for Broadcom to help develop Alphabet’s tensor processing units (TPUs). However, that doesn't mean Alphabet can’t collaborate with other companies on TPUs as well.

For example, MediaTek (OTCMKTS: MDTKF) is also doing work on TPUs. Hock Tan noted that while its agreement with Alphabet is “very, very strong… we fully expect that there will be some diversity of sources for them." Thus, Tan more or less confirmed that it is not Alphabet’s only TPU partner.

Broadcom Eyes Historically Strong Growth as Shares Take a Hit

Overall, Broadcom did not deliver the quarter that investors were betting on as they bid up shares. Still, the company expects revenue to grow by 84% YOY next quarter—the firm’s second-highest quarterly growth rate since 2017. Broadcom expects AI semiconductor growth of 200% to drive this. Despite Broadcom not living up to sky-high expectations, it's hard to argue that its business isn't firing on all cylinders in 2026.

Read this article online ›