Broadcom (AVGO) Stock Falls 6% After Earnings Despite Record Revenue — Here’s Why

TLDR

• Broadcom reported Q2 adjusted EPS of $2.44, beating the $2.40 estimate, with revenue up 48% to $22.19 billion
• AI revenue hit $10.8 billion in Q2, up 143% year-over-year
• Stock fell 6.1% in after-hours trading after guidance failed to impress investors
• Q3 revenue guidance of $29.4 billion was above analyst estimates of $28.25 billion, but not by enough
• CEO Hock Tan projects AI semiconductor revenue will exceed $16 billion in Q3, up over 200% year-over-year

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Broadcom (AVGO) delivered record quarterly results on Wednesday, but investors weren’t satisfied. The stock dropped 6.1% in after-hours trading after closing the regular session down 0.5% at $479.23.

Broadcom Inc., AVGO

The numbers were strong on paper. Adjusted EPS came in at $2.44, above the $2.40 Wall Street had penciled in. Revenue grew 48% year-over-year to $22.19 billion, edging past the consensus estimate of $22.13 billion.

AI revenue was the standout. Broadcom posted $10.8 billion in AI-related revenue for the quarter ended May 3, up 143% from the same period last year. That beat its own forecast.

$AVGO Q2’26 EARNINGS HIGHLIGHTS

🔹 Revenue: $22.187B (Est. $22.13B) 🟢; +48% YoY
🔹 Adj. EPS: $2.44 (Est. $2.39) 🟢; +54% YoY
🔹 Semiconductor Solutions: $15.009B (Est. $14.65B) 🟢; +79% YoY
🔹 AI Semiconductor: $10.8B (buyside Est. $11.3B) 🟡; +143% YoY

Q3 Guide:
🔹 Revenue:… pic.twitter.com/0p9rrmAZqs

— Wall St Engine (@wallstengine) June 3, 2026

Semiconductor solutions revenue totalled $15 billion for the quarter, up 79% year-over-year, and ahead of analyst estimates of $14.72 billion. Infrastructure software brought in $7.2 billion, up 9%.

Free cash flow came in at $10.3 billion, representing 46% of revenue. The company ended the quarter with $19.6 billion in cash, up from $14.2 billion at the end of the prior quarter.

Guidance Disappointed Despite Strong Beat

For Q3, Broadcom guided for revenue of approximately $29.4 billion — around 84% growth year-over-year. That topped analyst estimates of $28.25 billion, but the market had been hoping for more.

CEO Hock Tan said AI semiconductor revenue is expected to grow over 200% year-over-year in Q3, reaching $16 billion. “The momentum continues,” he said in the earnings release.

Investors may have been looking for a bigger beat on the outlook given the pace of growth already in motion.

The stock had gained 4.7% on Tuesday after Alphabet announced plans to sell $80 billion in equity to fund AI capital expenditure. Broadcom designs custom AI chips for Alphabet, including eight generations of Google’s Tensor Processing Unit. That relationship is now a decade old.

Broadcom currently designs custom AI chips for six clients, including Alphabet and OpenAI. It is targeting $100 billion in AI chip sales by 2027.

Software Becoming a Smaller Piece of the Pie

Broadcom’s software segment, which it built through acquisitions in the years before the AI boom, was meant to offset the cyclical nature of chip sales. Last year, software made up 42% of total revenue. By next year, that figure is expected to fall to around 20% as AI chip growth overtakes it.

Analysts are still projecting roughly 11% growth in software revenue for Q2.

HSBC recently raised its price target for Broadcom to $600 from $450, keeping a Buy rating. The bank cited expected growth in ASIC revenue in the second half of fiscal 2026, driven by deals with Google, Meta, Anthropic, and OpenAI.

Broadcom also declared a quarterly dividend of $0.65 per share, payable June 30, 2026. The company has raised its dividend for 16 consecutive years.

The stock carries a market cap of $2.29 trillion. InvestingPro analysis suggests the stock is currently overvalued relative to its Fair Value estimate.