Broadcom (AVGO) Stock Tumbles 5% Despite Explosive AI Revenue Growth

Key Takeaways

Table of Contents

AVGO shares slid over 5% after market close despite reporting AI revenue growth of 221% year-over-year, reaching $16.7 billion
Quarterly revenue climbed 86% to $29.59 billion, surpassing Wall Street forecasts, while adjusted EPS hit $3.32 versus $3.23 expected
The company’s Q4 revenue forecast of $34.8 billion fell short of the $35.03 billion analyst estimate
Management increased fiscal 2027 AI revenue projections to approximately $115 billion from $100 billion, yet some market participants anticipated $150 billion or higher
Broadcom faces intensifying competition in the custom chip market, with reports indicating Google has broadened its partnership with competitor Marvell

Broadcom delivered results that would typically generate celebration. Instead, Wall Street reacted with disappointment.

Shares of AVGO tumbled more than 5% during Wednesday’s extended trading session following the semiconductor manufacturer’s fiscal third-quarter earnings release. The stock changed hands near $361.74 in after-hours activity, retreating from its regular session close of $367.24.

Broadcom Inc., AVGO

The company’s AI chip division generated $16.7 billion in revenue, representing a 221% increase compared to the same period last year and 54% growth from the previous quarter. Consolidated revenue surged 86% annually to $29.59 billion, exceeding the Street’s $29.45 billion projection. Adjusted profit per share reached $3.32, beating the consensus estimate of $3.23.

On paper, these figures represent exceptional performance. However, the market had anticipated something more extraordinary.

Cody Acree, an analyst at StoneX who maintains a Buy recommendation on the shares, offered a straightforward assessment: the quarterly beat proved insufficient to satisfy investors. He referenced the benchmark Nvidia has established, observing that Broadcom’s approximately $300 million revenue outperformance appeared underwhelming relative to Nvidia’s recent massive earnings surprises.

“The magnitude is just not quite enough,” Acree explained to Yahoo Finance.

Forward Outlook Disappoints

The company’s future projections compounded investor concerns. Broadcom issued Q4 total revenue guidance of roughly $34.8 billion, trailing the $35.03 billion analyst consensus compiled by LSEG. Management forecasted AI semiconductor revenue of $21.7 billion for the fourth quarter, representing 236% year-over-year expansion, yet the figure still underwhelmed market participants.

Chief Executive Hock Tan did elevate the company’s extended outlook. Broadcom currently anticipates approximately $115 billion in AI chip revenue for fiscal year 2027, an increase from its previous $100 billion target, with expectations for that figure to potentially double to $230 billion by fiscal 2028.

The challenge lies in Morgan Stanley’s pre-earnings model, which had already incorporated $120 billion for fiscal 2027, while certain investor forecasts had climbed beyond $150 billion. Consequently, even an upgraded outlook failed to meet where segments of the market had positioned themselves.

Competitive Pressures Mounting

The stock decline wasn’t solely driven by elevated expectations. Broadcom confronts an emerging competitive challenge in the custom silicon arena. Reports suggest Google has broadened its chip development collaboration with Marvell, creating uncertainty around how much future accelerator spending Broadcom can capture.

JPMorgan’s Harlan Sur contended ahead of the earnings announcement that worries surrounding Broadcom’s Google partnership were exaggerated, emphasizing the company’s extensive track record and participation in upcoming TPU generations. BMO’s Harsh Kumar has positioned Broadcom as the second-strongest AI chip provider, trailing only Nvidia.

AI-related chips and networking solutions now represent more than half of Broadcom’s overall semiconductor revenue, which totaled $20.84 billion during the quarter.

So far this year, AVGO has advanced 6%, underperforming Nvidia’s 20% gain.

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