What Happened?
Shares of fabless chip and software maker Broadcom (NASDAQ: AVGO) fell 14.3% in the morning session after the company reported underwhelming Q2 FY2026 results: the problem was the specific figure that drives Broadcom's valuation multiple, and management's choice not to raise its long-term target.
Broadcom guided Q3 AI semiconductor revenue to $16 billion, a number representing more than 200% year-over-year growth, but approximately $1.2 billion below what analysts had modelled. CEO Hock Tan then reiterated, rather than raised, the company's FY2027 AI semiconductor revenue target of "in excess of $100 billion." At 25-30x forward revenue, the market needed more than confirmation, it needed acceleration.
The underlying results were genuinely exceptional. Q2 revenue reached a record $22.19 billion, up 48% year-over-year, with AI semiconductor revenue surging 143% to $10.8 billion, slightly ahead of Broadcom's own $10.7 billion prior guidance. Non-GAAP EPS of $2.44 beat the $2.40 consensus.
Free cash flow hit a record $10.3 billion, representing 46% of revenue. EBITDA margin reached a record 69%. Q3 revenue guidance of $29.4 billion beat the $28.53 billion consensus, implying 84% year-over-year growth.
Tan confirmed six hyperscaler customers including Anthropic, Google, Meta and OpenAI, and announced an AI compute platform with Apollo and Blackstone targeting 20 gigawatts of capacity by 2028. But none of it was enough. The stock had rallied over 40% heading into earnings.
When every superlative is already embedded in the price, the only catalyst that moves the needle is a guidance raise or a surprise, and Broadcom delivered neither.
Analysts largely held constructive views after the decline: Jefferies raised its price target to $550, Wells Fargo maintained $545, Macquarie was the notable exception with a downgrade to Neutral. The dominant view on the street was a "catalyst gap, not an AI demand collapse."
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What Is The Market Telling Us
Broadcom’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. But moves this big are rare even for Broadcom and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 2 days ago when the stock gained 5.2% as investors positioned ahead of its fiscal Q2 FY2026 earnings report due after the close on June 3, amplified by independent AI catalysts as Anthropic confidentially filed to go public.
The day's signals were unusually aligned. Alphabet announced plans to raise $80 billion, including a $10 billion investment from Berkshire Hathaway, earmarked for AI computing infrastructure. Broadcom designs Google's TPU chips under a supply agreement running through 2031, making Alphabet's capital deployment a direct forward revenue signal.
Also, Jensen Huang's endorsement of Marvell (Broadcom's closest rival in custom AI silicon) as the "next trillion-dollar company" at Computex validated the entire custom ASIC ecosystem, which Broadcom leads with approximately 60-70% market share.
Lastly, Anthropic's confidential IPO filing matters directly for Broadcom: the company reportedly holds an agreement to supply Anthropic with 3.5 gigawatts of TPU capacity beginning in 2027. Broadcom reported Q1 FY26 AI semiconductor revenue of $8.4 billion, up 106% year-over-year, on total revenue of $19.31 billion (+29% YoY).
Management guided Q2 AI revenue to $10.7 billion, implying 140% year-over-year growth. CEO Hock Tan has stated the company has "line of sight" to AI revenue exceeding $100 billion in 2027, backed by a $73 billion AI backlog and multi-year supply commitments from at least six hyperscaler customers including Google, Meta, OpenAI, and Anthropic.
The VMware business, acquired for $69 billion in late 2023, contributed $6.8 billion in Q1 revenue at 78% margins, providing the steady, high-margin cash engine that is quietly funding Broadcom's AI expansion.
Broadcom is up 17.6% since the beginning of the year, but at $408.92 per share, it is still trading 15.1% below its 52-week high of $481.57 from June 2026. Investors who bought $1,000 worth of Broadcom’s shares 5 years ago would now be looking at an investment worth $8,609.
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