KEY POINTS
- Broadcom reported record Q2 AI semiconductor revenue of $10.8 billion, up 143% year-over-year, but shares dropped as much as 14% after hours on a software revenue miss and unchanged full-year AI chip guidance.
- The selloff was driven by sky-high expectations rather than fundamental weakness, as overall revenue hit a record $22.2 billion and the company projects Q3 AI revenue of $16 billion.
- Traders should watch whether the pre-market session stabilizes near the $280 level, which represents prior support from the April consolidation range.
Broadcom shares cratered as much as 14% in after-hours trading Wednesday after the chipmaker reported fiscal second-quarter results that exposed the widening gap between what the AI trade demands and what even a blockbuster quarter can deliver.
The headline numbers looked formidable. Total revenue hit a record $22.2 billion, up 48% year-over-year. AI semiconductor revenue doubled to $10.8 billion. Adjusted earnings per share came in at $2.37, above consensus. On paper, this was a company firing on every cylinder that matters in 2026. The market sold it anyway.
The problem was twofold. Infrastructure software revenue landed at $7.18 billion, roughly $140 million below the $7.32 billion analysts expected, per CNBC's earnings report. And CEO Hock Tan reiterated rather than raised the company's full-year AI semiconductor revenue forecast of "in excess of $100 billion" for fiscal 2027, a target the market had already priced in months ago.
Six Customers, One Hundred Billion Dollars
Broadcom's AI business now rests on custom accelerators and networking silicon designed for six hyperscale customers: Anthropic, Google, Meta, OpenAI, and two others the company has not publicly named. These custom XPUs are the company's crown jewel, each one a bespoke chip designed to the exact specifications of its buyer's training and inference architecture.
Networking represented nearly 40% of Q2 AI revenue but management expects that ratio to normalize toward 30% as custom accelerator shipments ramp further. The Q3 guide calls for AI semiconductor revenue of $16 billion, which would represent over 200% year-over-year growth and a sequential jump of roughly 48%. That number alone would have been jaw-dropping six months ago. It landed Wednesday as a disappointment because Broadcom did not signal upside beyond what it had already telegraphed.
The software miss, meanwhile, traced back to the VMware integration. Broadcom's $69 billion acquisition continues to generate enterprise license conversions, but the pace of those conversions slowed in Q2. Management attributed the shortfall to deal timing rather than demand destruction, but the market was not in a forgiving mood after a stock that had tripled off its 2024 lows.
The Valuation Question
Broadcom entered earnings trading at roughly 38 times forward earnings, a premium that assumed continued positive surprises on both the AI and software sides of the business. Getting only one out of two was not enough. The after-hours move erased approximately $70 billion in market capitalization in under an hour, according to TechTimes reporting.
What makes this selloff instructive rather than alarming is the order backlog. Broadcom disclosed that its custom chip agreements now extend through 2028, meaning the revenue visibility for its AI business is among the longest in the semiconductor industry. The company is not losing customers or market share. It is losing the expectations game, which is a fundamentally different problem.
For context, Nvidia reported its own blowout quarter in late May and saw a similar pattern: beat on revenue, guided strongly, and still traded flat for days afterward. The AI semiconductor trade has entered a phase where exceptional results are table stakes and only exceptional-plus-surprise moves the stock higher.
What Comes Next
The pre-market session Thursday will set the tone. If AVGO finds a floor near $280, that suggests institutional buyers view the pullback as a gift and the backlog story still holds. A break below that level opens a path toward $260, which lines up with the 100-day moving average. The next major catalyst is the company's annual analyst day in September, where management could update the $100 billion AI revenue target that now feels like a ceiling rather than a floor. Until then, Broadcom remains a story about the distance between great and great-enough.
