Even as Earnings Show Robust Demand for AI, Broadcom's Stock Cools Off

Broadcom Inc. slightly exceeded Wall Street’s expectations with its forecast for the current quarter, but that wasn’t enough to keep the stock from sliding in after-hours trading Thursday.

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The semiconductor and software firm announced it expects revenue of $15.8 billion for the fiscal third quarter ending in July. This outlook edged above analysts’ average forecast of $15.7 billion, according to FactSet data. Despite the better-than-expected guidance, Broadcom shares dropped 4% in extended trading.

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The decline likely reflects investors pausing to reassess after a strong run-up in the stock price. As of Thursday’s close, Broadcom shares had surged 78% from their April low, reflecting robust investor optimism in recent months.

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For the fiscal second quarter, which ended in April, Broadcom reported record revenue of $15.0 billion, up 20% from the same period last year and aligned with the average Wall Street estimate. On an adjusted basis, the company earned $1.58 per share, slightly ahead of the $1.57 per-share estimate, marking a modest one-cent beat.

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Chief Executive Hock Tan highlighted ongoing strength in Broadcom’s artificial intelligence (AI) semiconductor business as a key contributor to growth. He also noted the positive impact of VMware, the cloud-computing firm Broadcom acquired last year. Tan said Broadcom expects AI chip revenue to hit $5.1 billion in the July quarter — its 10th consecutive quarter of growth — as demand from its large-scale cloud customers continues to expand.

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In the April quarter, revenue from AI-related products rose 46% from the previous year to more than $4.4 billion. Tan attributed this growth to increased demand for Broadcom’s AI networking solutions and forecast even stronger performance in the current quarter. He said the company expects that momentum to accelerate further.

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Prior to the earnings announcement, analysts at Melius Research described Broadcom as one of the “must-own” stocks in the AI space, citing the company’s solid foothold in the fabless chipmaker segment. They noted that Broadcom’s switching business — which contributes roughly 30% of its total AI revenue — is positioned for expansion in the coming years as its customers deploy more large-scale AI chip clusters.

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According to Melius, Broadcom holds a unique advantage in the AI hardware market by offering a combination of high-performance and cost-efficient chip solutions. This dual capability makes the company well-suited to benefit from both premium and value-driven segments of the AI computing space.

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Additionally, the Melius analysts noted that Broadcom stands to gain from owning VMware, a leading provider of virtualization software and cloud infrastructure. They emphasized that Broadcom’s management, under Tan’s leadership, has built a portfolio of high-margin, “sticky” businesses that generate recurring revenue and stable profits.

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C.J. Muse, an analyst at Cantor Fitzgerald, had predicted that Broadcom would not only beat earnings expectations but also raise its outlook. He highlighted several areas investors would be focusing on during the company’s post-earnings call. In particular, Muse expected executives to offer updates on demand trends for Broadcom’s custom silicon offerings, which are built specifically for large cloud customers.

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One point of investor interest is Broadcom’s partnerships with major tech companies such as Google. Google is in the process of advancing its AI infrastructure, including next-generation tensor processing units (TPUs), known as v6 and v7p. Broadcom has reportedly been tapped to supply custom silicon for these projects, and investors were hoping for insights into the development timelines, production ramps, and overall scale of these collaborations.

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Broadcom previously stated it was working with four key customers on its custom silicon initiatives. Muse said investors are eager to learn more details about those clients — especially any additional information related to their identities, the timing of product deployments, and the potential revenue impact from these deals.

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Despite a strong quarter and optimistic outlook, the market’s reaction shows that much of the good news may have already been priced into Broadcom’s stock. While AI remains a powerful growth driver and the VMware acquisition continues to bolster margins, investors appear to be shifting their attention to longer-term growth signals and concrete updates on major strategic partnerships. For now, Broadcom remains firmly in the spotlight as one of the leading players in the AI hardware space.

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