Broadcom Earnings Raise AI Forecast but Outlook Disappoints
Broadcom earnings posted record Q2 and lifted FY AI guidance to $56 billion, but an unchanged future AI target triggered analyst downgrades and repositioning.
KEY TAKEAWAYS
- Broadcom reported record fiscal Q2 revenue of $22.2 billion and adjusted EPS of $2.44.
- Management raised FY 2026 AI semiconductor revenue guidance to $56 billion but left the long-term AI target unchanged.
- Analysts cited unmet near-term AI outlook and unchanged long-term target, prompting downgrades and investor scrutiny.
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Broadcom Inc. (NASDAQ: AVGO) reported record fiscal Q2 2026 results on June 4, 2026, with consolidated revenue of $22.2 billion, up 48% year-over-year, and adjusted earnings per share of $2.44, a 54% increase. AI semiconductor sales surged 143% to $10.8 billion. The company raised its full-year AI semiconductor revenue forecast to $56 billion, roughly 180% higher than the prior fiscal year. However, management’s incremental AI outlook for the third quarter and an unchanged long-term AI target fell short of elevated expectations, prompting analyst downgrades and a selloff.
Record Quarter and Guidance
Broadcom’s Semiconductor Solutions segment grew 79% year-over-year in the quarter. The company generated $10.3 billion in free cash flow, a 60% increase that lifted its free-cash-flow margin to 46%. Management set third-quarter targets of $16.0 billion for AI semiconductor revenue and $29.4 billion for consolidated sales.
Despite the strong quarterly results and raised full-year AI guidance, Broadcom maintained its previously communicated long-term AI revenue target for fiscal 2027. This decision disappointed some investors who expected an upward revision following the Q2 beat and higher FY 2026 forecast.
AI Bookings and Market Reaction
Executives highlighted six “core XPU” design wins—custom AI accelerators—and a sizeable AI order book. One analysis estimated the backlog at more than $30 billion, providing multi-year revenue visibility through at least fiscal 2028. Analysts emphasize that converting these bookings into shipments will be critical to sustaining growth.
The market reaction reflected a valuation and optics reset rather than a deterioration in fundamentals. One analyst downgraded the stock from Buy to Hold, citing concerns that expectations had become overinflated relative to near-term growth. Another maintained an overweight rating and raised its price target to $525, attributing the selloff to perception rather than business weakness.
Competitive pressure from Marvell Technology, whose Nvidia-aligned momentum in custom silicon and AI networking poses a credible threat, also factored into investor caution. Analysts note that sustaining more than 100% year-over-year AI revenue growth into fiscal 2027 may require additional capital spending and research and development, which could pressure margins despite Broadcom’s strong free-cash-flow generation.
Investors will be watching whether Broadcom can translate its design wins and order backlog into realized shipments and maintain momentum into fiscal 2027.
