Broadcom (AVGO) Stock Plunges Over 20% Despite Record-Breaking Revenue Performance

Key Takeaways

• Broadcom delivered record Q2 revenue totaling $22.2 billion, marking a 48% year-over-year increase, while AI semiconductor sales skyrocketed 143% to reach $10.8 billion
• The company’s Q3 AI revenue forecast of approximately $16 billion fell short of elevated Wall Street projections, sparking a selloff exceeding 20% from the stock’s peak of $495
• Q2 operating margin climbed to an all-time high of 67.3%, with expectations to maintain approximately 67% through Q3
• HSBC upgraded AVGO’s price target to $600 with a Buy rating, highlighting ASIC revenue expansion and long-term contracts secured with Google, Meta, Anthropic, and OpenAI
• Analyst consensus on TipRanks reflects a Strong Buy rating, with average price targets reaching $512.88, suggesting approximately 29% potential upside from today’s $396.60 level

Broadcom delivered exceptional Q2 financial results recently, yet investors responded by driving shares significantly lower. The catalyst? AI revenue projections for Q3 that fell marginally below heightened Wall Street forecasts, resulting in AVGO tumbling over 20% from its peak of $495. The semiconductor giant now hovers near $396.60.

Broadcom Inc., AVGO

It’s important to note: the forecast itself remained strong. Leadership projected approximately $16 billion in AI semiconductor sales for Q3—representing over 200% year-over-year growth—while reaffirming the company’s ambition to surpass $100 billion in AI revenue by Fiscal 2027. Market participants had simply established an exceptionally elevated threshold.

Q2 revenue reached an unprecedented $22.2 billion, reflecting 48% year-over-year expansion. AI semiconductor revenue specifically soared 143% to $10.8 billion. AI order bookings exceeded $30 billion during the quarter.

Free cash flow achieved a record $10.3 billion, representing 46% of total revenue. The company’s leverage ratio improved to 0.74, down from 1.0 twelve months prior and 1.65 two years earlier.

Understanding the Margin Dynamics

A contributing factor behind the stock decline involved gross margin contraction. Consolidated gross margin decreased 230 basis points year-over-year to 77.1%, with expectations for further decline to approximately 74% in Q3.

However, the underlying driver is critical to understand. AI semiconductors generate lower gross margins compared to software products. As AI represents an expanding portion of Broadcom’s overall revenue composition, consolidated margins will naturally experience compression. This reflects product mix evolution, not deteriorating profitability fundamentals.

Operating margin performance provides greater clarity: achieving a record 67.3% in Q2, with management projecting approximately 67% continuation into Q3.

Infrastructure software revenue demonstrated resilience, generating $7.2 billion in Q2—up 9% year-over-year—while maintaining gross margins approaching 93%.

HSBC Elevates Target to $600

On June 2, HSBC analyst Frank Lee increased his AVGO price target to $600 from $450, maintaining a Buy recommendation. Lee highlighted accelerating ASIC revenue momentum expected throughout the latter half of FY2026 extending into FY2027.

He emphasized that Broadcom will provide Google’s TPU v7, commanding higher average selling prices versus v6. Meta continues expanding its proprietary ASIC deployment. Additionally, Anthropic and OpenAI have secured multi-year arrangements commencing in FY2026 and FY2027.

HSBC currently projects Broadcom’s ASIC revenue reaching $46 billion for FY2026 and $100.2 billion for FY2027—exceeding Street consensus by 23% and 26%, respectively.

Market concerns regarding potential loss of Google’s TPU business in 2028 were also clarified. HSBC referenced a supply agreement between both entities extending through 2031.

From a valuation perspective, AVGO trades at roughly 37.1x forward earnings. This compares favorably against Marvell at 65.3x and AMD at 62.5x.

TipRanks data reveals a Strong Buy consensus derived from 27 analyst ratings issued over the past three months: 24 Buy recommendations, 3 Hold ratings, and zero Sell ratings. The average 12-month price objective sits at $512.88.

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