Broadcom shares fell as much as 6% in early trading Thursday, a day after the semiconductor maker reported record quarterly revenue and profit that nonetheless failed to clear the sky-high expectations built into its stock price. By midday the decline had narrowed to roughly 3% to 4%, but the reaction underscored how little room for disappointment investors are giving companies at the center of the AI buildout.
For its fiscal third quarter, Broadcom reported revenue of $29.6 billion, up 86% from a year earlier, and non-GAAP earnings of $3.32 a share, both ahead of Wall Street's roughly $29.2 billion to $29.4 billion and $3.21 to $3.24 estimates. AI semiconductor revenue — chips designed for hyperscale customers' data centers — jumped 221% from a year earlier and 54% from the prior quarter to $16.7 billion, and free cash flow rose 34% to $13.7 billion.
A guidance gap, not a growth problem
The trouble was guidance. Broadcom told investors to expect roughly $34.8 billion in fourth-quarter revenue, with AI semiconductor sales rising to $21.7 billion — strong growth, but short of the roughly $35 billion analysts had penciled in. "Q3 demand was simply hot and we're just getting started," chief executive Hock Tan told analysts, adding that "demand for our custom AI accelerators and networking continues to be very strong." Tan also outlined longer-range targets, projecting AI revenue near $115 billion in fiscal 2027 and $230 billion in fiscal 2028, with earnings per share topping $30 by then.
Wall Street's response was split. Cantor Fitzgerald raised its price target to $600 from $525 and BMO Capital lifted its target to $575 from $455, citing Broadcom's relationships with six major AI customers. Macquarie upgraded the stock to outperform, arguing that fears of Google building its own chips in-house look largely priced in. But Evercore ISI trimmed its target to $578 from $582 and TD Cowen cut its target to $475 from $500, both pointing to the same guidance shortfall that unsettled the broader market.
The episode fits a pattern this earnings season: with AI-linked stocks trading at rich multiples, even a ninth consecutive quarterly beat has not been enough to guarantee a positive reaction when guidance comes in only fractionally below the Street's most bullish assumptions. Broadcom's next test comes with its fiscal fourth-quarter report in December, when investors will find out whether the $34.8 billion outlook proves conservative — as it has in prior quarters — or whether the AI capital-spending cycle is finally showing signs of moderating.
