Broadcom’s decline sends a warning to the AI sector

Broadcom shares fell by more than 20% despite strong quarterly results. Investors began reassessing expectations across the AI space, with AVGO emerging as one of the first signals of a potential cooling phase in the market.

Broadcom Inc. (NASDAQ: AVGO) released its Q2 2026 financial results, delivering strong growth; however, this proved insufficient to satisfy investors. Revenue increased by 48% year-on-year, non-GAAP EPS rose by 54%, and free cash flow advanced by 60%.

The primary driver of growth was the AI segment. Revenue from AI semiconductors surged by 143% year-on-year, while the Semiconductor Solutions segment expanded by 79%. Demand remains robust for custom AI accelerators and networking equipment for data centres.

Profitability remains one of Broadcom’s key strengths. Adjusted EBITDA reached 15.24 billion USD, representing 69% of revenue, while free cash flow reached 46% of revenue. The company is not merely increasing sales but effectively converting growth into cash flow.

Guidance for Q3 of the 2026 financial year also appears strong. Broadcom expects revenue of 29.4 billion USD, adjusted EBITDA at approximately 68% of revenue, and AI semiconductor sales potentially rising by more than 200% year-on-year to 16.0 billion USD.

Nevertheless, the market reaction was negative and extended across the broader technology sector. Broadcom shares declined sharply as revenue fell slightly short of expectations, AI chip guidance came in below elevated analyst projections, and the company did not raise its 2027 AI outlook. After a significant rally in the shares, the market had anticipated more; consequently, even a strong report failed to support the stock.

This article examines Broadcom Inc., outlines the sources of its revenue, reviews quarterly performance, and discusses expectations for 2026. It also provides a technical analysis of AVGO shares, forming the basis for the forecast for Broadcom shares in 2026.

About Broadcom Inc.

Broadcom Inc. is a US-based technology company specialising in developing chips for networking equipment, servers, data centres, wireless communications, and software for cloud and enterprise solutions. Founded in 1961 as a division of HP, it was spun off as Avago Technologies in 1991. In 2009, Avago Technologies went public on NASDAQ, and its shares have been traded under the ticker AVGO ever since. In 2016, Avago Technologies acquired Broadcom Corporation for 37.0 billion USD and adopted its name.

Broadcom Inc.’s main revenue streams

Broadcom’s revenue is divided into two main segments:

1. Semiconductor business: approximately 75% of revenue is derived from the sale of chips for data centres, cloud computing, AI accelerators, network processors, and chips for servers, storage, networking equipment, and wireless modules for smartphones and Wi-Fi.
2. Infrastructure software: the remaining 25% of revenue comes from enterprise software for cloud computing, cybersecurity and networking solutions, VMware products, automation components, and DevOps platforms.

Broadcom Inc. Q1 2025 financial results

On 6 March, Broadcom released its Q1 2025 financial results for the quarter ended 2 February 2025. The key figures are as follows:

• Revenue: 14.9 billion USD (+25%)
• Net profit: 7.8 billion USD (+67%)
• Earnings per share (EPS): 1.60 USD (+307%)
• Operating profit (non-GAAP): 9.82 billion USD (+44%)

Net revenue by segment:

• Semiconductor solutions: 8.2 billion USD (+55%)
• Infrastructure software: 6.7 billion USD (+47%)

Broadcom reported strong financial results for Q1 of the 2025 financial year, with revenue rising by 25% year-on-year. This growth was primarily driven by a 77% increase in AI-related revenue, which reached 4.1 billion USD, and a 47% rise in infrastructure software revenue, totalling 6.7 billion USD. The successful integration of VMware, acquired in 2023, also played a significant role in this expansion, strengthening Broadcom’s position in the enterprise software market.

CEO Hock Tan highlighted the strong demand for custom AI chips from cloud computing giants, which heavily invest in AI-driven data centres.

Looking ahead to Q2 2025, Broadcom expects revenue to reach 14.9 billion USD, slightly above analysts’ estimates. The company anticipates further growth in the AI semiconductor segment, with AI-related revenue projected to increase to 4.4 billion USD in the next quarter.

Broadcom Inc. Q2 2025 financial results

On 5 June, Broadcom published its Q2 2025 financial results for the quarter ended 4 May 2025. Below are its key figures:

• Revenue: 15.0 billion USD (+20%)
• Net income: 7.8 billion USD (+44%)
• Earnings per share (EPS): 1.58 USD (+43%)
• Operating profit (non-GAAP): 9.79 billion USD (+37%)

Net revenue by segment:

• Semiconductor solutions: 8.4 billion USD (+17%)
• Infrastructure software: 6.6 billion USD (+25%)

Broadcom’s Q2 report for the 2025 financial year painted a strong picture for investors, highlighting the company’s solid position in the AI and semiconductor sectors. Revenue rose by 20% from last year, largely driven by a rapid 46% increase in AI revenue to 4.4 billion USD. This growth reinforced Broadcom’s pivotal role as a supplier of custom AI chips and networking solutions to major companies, such as Google, Meta, and ByteDance.

In Q2 of the 2025 financial year, the company repurchased shares worth 3.2 billion USD. This demonstrated management’s confidence in the long-term value of the business and its ability to generate stable cash flow.

Broadcom issued an optimistic outlook for Q3, anticipating revenue of 15.8 billion USD, slightly above Wall Street’s expectations. CEO Hock Tan emphasised that AI semiconductor revenue would increase to 5.1 billion USD next quarter, marking the tenth consecutive quarter of growth. This guidance reflected the company’s confidence in sustained demand for its AI and networking products, including the recently unveiled Tomahawk 6 switch, which enhances network performance and efficiency for AI workloads.

Despite strong financial results and a positive outlook, Broadcom’s shares fell by 5% following the release of the report. Market participants were concerned about a potential slowdown in the AI market, which could lead the company to miss its targets. In addition, Broadcom’s stock price had surged by 92% in the last two months, highlighting a high valuation that may be difficult to sustain amid trade restrictions. Nevertheless, analysts remained optimistic about the company’s future. For instance, Japanese investment banking and securities firm Mizuho Securities named Broadcom one of the best semiconductor stocks, citing its high profitability and strong free cash flow, supported by AI trends.

Overall, Broadcom’s Q2 2025 results confirmed its strategic leadership in the AI and semiconductor sector, with continued investment in AI technology, robust relationships with key clients, and a positive outlook, making the company’s shares an attractive investment.

Broadcom Inc. Q3 2025 financial results

On 4 September, Broadcom released its Q3 2025 financial results for the quarter ended 3 August 2025. The key figures are as follows:

• Revenue: 15.95 billion USD (+22% year-on-year)
• Net income: 8.40 billion USD (+37% year-on-year)
• Earnings per share (EPS): 1.69 USD (+36% year-on-year)
• Operating profit (non-GAAP): 10.45 billion USD (+31% year-on-year)

Net revenue by segment:

• Semiconductor solutions: 9.17 billion USD (+26% year-on-year)
• Infrastructure software: 6.79 billion USD (+17% year-on-year)

Broadcom’s Q3 2025 financial results exceeded analyst expectations and confirmed the company’s resilience amid intense competition and a rapidly growing AI sector. Revenue reached 15.95 billion USD, up 22% compared with the same period last year. The primary growth driver was AI-related solutions, where revenue grew 63% year-on-year to 5.2 billion USD.

The revenue mix was still split between two key areas: semiconductors and infrastructure software. The semiconductor business accounted for more than 75% of total revenue, with the emphasis in the quarter under review placed on orders for hyperscale data centres. Broadcom reported that its backlog of contracted orders reached 110 billion USD, with around half attributable to the AI segment. In the software segment (including VMware), steady growth was observed, supported by the transition to a subscription model and a focus on cloud-based solutions.

The company’s financial performance remained strong. Non-GAAP operating profit totalled approximately 10.7 billion USD, with an EBITDA margin of 67%. Adjusted earnings per share reached 1.69 USD (+36% year-on-year), exceeding the consensus forecast. Gross margin declined slightly due to the higher share of deliveries in the AI segment; however, this was offset by strong operating efficiency.

Management provided a positive outlook for Q4 of the 2025 financial year. Revenue was expected at 17.4 billion USD, up 24% from a year earlier and above analyst expectations. In the AI segment, Broadcom expected to generate 6.2 billion USD, which implied growth of 66% compared with the same quarter in 2024. The company also confirmed that it had secured a contract with a new hyperscale customer worth more than 10 billion USD for the supply of server solutions with AI accelerators (XPU), to be delivered over the coming years.

Broadcom Inc. Q4 2025 financial results

On 11 December, Broadcom released its Q4 2025 financial results for the quarter ended 2 November 2025. The key figures are as follows:

• Revenue: 18.02 billion USD (+28%)
• Net income (non-GAAP): 9.71 billion USD (+39%)
• Earnings per share (non-GAAP): 1.95 USD (+37%)
• Operating income (non-GAAP): 12.22 billion USD (+34%)

Net revenue by segment:

• Semiconductor solutions: 11.07 billion USD (+35%)
• Infrastructure software: 6.94 billion USD (+19%)

Broadcom’s results for Q4 of the 2025 financial year were strong and exceeded market expectations. Revenue amounted to 18 billion USD (+28% y/y), compared with a forecast of 17.5 billion USD, while adjusted earnings per share (non-GAAP EPS) reached 1.95 USD, above analysts’ expectations (1.87 USD). The main growth driver was AI chips: revenue from the semiconductor segment increased to 11.1 billion USD (+35% y/y), of which 6.5 billion USD came from AI-related products (+74% y/y). The infrastructure software business, including VMware, also grew to 6.90 billion USD (+19% y/y). As a result, Broadcom consistently generates earnings from both hardware solutions and software infrastructure. The company maintained high profitability, with non-GAAP EBITDA of 12.2 billion USD (68% of revenue), free cash flow of 7.5 billion USD, and a 10% dividend increase to 0.65 USD per share.

The outlook for Q1 2026 was also positive, with expected revenue at 19.1 billion USD (+28% y/y), the EBITDA margin projected at 67%, and sales of AI chips expected to rise to 8.2 billion USD. Broadcom stated that it had an order backlog for AI solutions of 73 billion USD over the next 18 months.

Broadcom Inc. Q1 2026 financial results

On 4 March, Broadcom released its Q1 2026 financial results for the quarter ended 1 February 2026. The key figures are as follows:

• Revenue: 19.31 billion USD (+29%)
• Net income (non-GAAP): 10.19 billion USD (+30%)
• Earnings per share (non-GAAP): 2.05 USD (+28%)
• Operating income (non-GAAP): 12.83 billion USD (+30%)

Net revenue by segment:

• Semiconductor Solutions: 12.52 billion USD (+52%)
• Infrastructure Software: 6.80 billion USD (+1%)

Broadcom’s Q1 2026 results were strong and slightly exceeded market expectations. Revenue reached 19.31 billion USD, up 29% year-on-year, compared with analyst forecasts of 19.18 billion USD. Adjusted EPS came in at 2.05 USD, slightly above the consensus estimate of around 2.03 USD.

The main driver of growth was the AI-related business. Revenue from AI chips rose to 8.4 billion USD, representing a 106% year-on-year increase. Strong demand was seen for AI accelerators and networking equipment for data centres. The company’s overall semiconductor business expanded to 12.52 billion USD, marking 52% year-on-year growth. By contrast, the infrastructure software segment was broadly flat at 6.80 billion USD, increasing by just 1%.

Broadcom continues to maintain exceptionally high profitability. Adjusted EBITDA reached 13.13 billion USD, equivalent to approximately 68% of revenue. Free cash flow totalled 8.01 billion USD, or around 41% of revenue. The company also announced a new 10 billion USD share buyback program and maintained its quarterly dividend at 0.65 USD per share.

Guidance for Q2 2026 was also positive. Broadcom expects revenue of around 22.0 billion USD (+47% year-on-year), significantly above the LSEG consensus of approximately 20.56 billion USD. The company also forecasts an adjusted EBITDA margin of 68%, while revenue from AI chips is expected to rise to 10.7 billion USD. Broadcom additionally stated that it now sees the potential to exceed 100 billion USD in AI chip revenue by 2027, signalling very strong management confidence in sustained demand from major hyperscale clients.

Broadcom Inc. Q2 2026 financial results

On 4 March, Broadcom released its Q2 2026 financial results for the quarter ended 1 February 2026. Below are the key figures:

• Revenue: 22.19 billion USD (+48%)
• Net income (non-GAAP): 12.07 billion USD (+55%)
• Earnings per share (non-GAAP): 2.44 USD (+54%)
• Operating income (non-GAAP): 14.93 billion USD (+52%)
• Free cash flow: 10.26 billion USD (+60%)

Net revenue by segment:

• Semiconductor solutions: 15.01 billion USD (+79%)
• Infrastructure software: 7.18 billion USD (+9%)

The primary source of growth once again came from the AI-related business. In Q1, revenue from AI semiconductors increased by 106% year-on-year, accelerating further to 143% year-on-year in Q2. The expansion reflects strong demand for custom AI accelerators and networking equipment for data centres. As a result, Semiconductor Solutions became the main driver of overall performance.

The primary source of growth once again came from AI-related business. In Q1, revenue from AI semiconductors increased by 106% year-on-year, and in Q2 growth accelerated further to 143% year-on-year. The expansion reflects strong demand for custom AI accelerators and networking equipment for data centres. As a result, Semiconductor Solutions became the main driver of overall performance.

The Infrastructure Software segment showed more moderate dynamics but still improved compared with the previous quarter. In Q1, revenue increased by only 1%, while in Q2 growth accelerated to 9%. Although the segment does not deliver the same pace of expansion as AI semiconductors, it remains an important source of stable revenue and high margins. For Broadcom, this creates balance: AI chips generate rapid growth, while the software business supports earnings stability.

Profitability remains very strong. Adjusted EBITDA totalled 15.24 billion USD, representing 69% of revenue, while free cash flow reached 10.26 billion USD, equivalent to approximately 46% of revenue. These figures indicate that the company is effectively converting revenue growth into cash flow. Broadcom also maintained its quarterly dividend at 0.65 USD per share.

Guidance for Q3 of the 2026 financial year also appears robust. Broadcom expects revenue of 29.4 billion USD, implying year-on-year growth of 84%. The company projects a non-GAAP operating margin of 67% and Adjusted EBITDA of 68% of revenue. Management additionally indicated that AI semiconductor revenue in Q3 could increase by more than 200% year-on-year to reach 16.0 billion USD.

Broadcom’s report triggers a sell-off across the technology sector

Following the release of its results, Broadcom shares moved sharply lower, despite the company’s underlying business continuing to expand. The decline reflected elevated expectations. The market had anticipated an almost flawless report, while the actual results and guidance came in slightly below those expectations.

Revenue for Q2 of the 2026 financial year totalled 22.19 billion USD and marginally missed market forecasts. Guidance for AI semiconductor revenue in the next quarter also disappointed some investors. The company expects 16.0 billion USD, whereas the market had been positioned for a stronger outlook. Broadcom also did not raise its long-term AI chip forecast for 2027. For most companies, such figures would have appeared strong; however, after the sharp rally in the shares, investors expected more.

The market interpreted the report as a signal that expectations across the AI sector may have become overstretched. Broadcom is widely regarded as a key indicator of demand for AI infrastructure, as it supplies custom AI chips and networking equipment for major data centres. As a result, the decline in its shares quickly spilled over into the broader technology sector, particularly among semiconductor manufacturers and AI-related companies.

Investors began taking profits not only in Broadcom but also in other AI-linked stocks that had rallied strongly in recent months. The entire semiconductor sector came under pressure as the market reassessed whether current elevated valuations remain justified. Ultimately, Broadcom’s decline became a catalyst for a broader correction across the technology sector.

Analysis of key valuation multiples for Broadcom Inc.

Below are the key valuation multiples for Broadcom Inc. based on the Q2 2026 financial year results, calculated at a share price of 385 USD.

Broadcom currently appears to be a very high-quality growth stock, but an expensive one. The company is delivering strong revenue growth, exceptionally high margins, and powerful cash flow generation, which explains why the market is willing to assign a substantial premium. However, across most key valuation metrics, that premium is already clearly visible. Any investor doubt regarding the sustainability of further growth could therefore translate into a sharp decline in the share price – as occurred following the quarterly results.

Even after the 15% drop following the earnings release, Broadcom shares remain expensive. Broadcom represents a strong business story in which the market has already priced in very high expectations for AI-driven expansion and further profit growth. As a result, the stock may remain attractive to long-term investors only if they have conviction in the continuation of rapid business growth.

Expert forecasts for Broadcom Inc. stock

• Barchart: 34 out of 42 analysts assigned a Strong Buy rating, 3 assigned a Buy rating, and 5 rated the shares as Hold. The upper price target is 640 USD, and the lower bound is 380 USD.
• MarketBeat: 30 out of 33 analysts assigned a Buy rating, and 3 recommended Hold. The upper price target is 582 USD, and the lower bound is 375 USD.
• TipRanks: 24 out of 27 analysts assigned a Buy rating, and 3 recommended Hold. The upper price target is 630 USD, and the lower bound is 390 USD.
• Stock Analysis: 36 out of 48 analysts assigned a Strong Buy rating, 8 assigned a Buy rating, and 4 rated the shares as Hold. The upper price target is 650 USD, and the lower bound is 215 USD.

Broadcom Inc. stock price forecast for 2026

In July 2025, Broadcom shares broke above the upper boundary of an ascending channel and continued to rise, advancing by a distance equal to the channel’s width, which became the technical target of the move. Subsequently, AVGO formed a consolidation range between 405 and 430 USD and, on 29 May, broke above the upper boundary of that range, implying further upside potential.

However, the advance lasted only three days, after which the price declined sharply below 400 USD, breaking below the 20- and 50-period moving averages. As a result, a false breakout formed at the 430 USD resistance level, signalling the possibility of a more pronounced decline. Based on the current price structure of Broadcom shares, the potential scenarios for AVGO in 2026 are as follows.

The primary forecast for Broadcom Inc. shares assumes a test of resistance at 430 USD, followed by a rejection from that level and a decline towards 310 USD.

The optimistic forecast for Broadcom Inc. stock assumes a breakout above resistance at 430 USD. In that case, AVGO could return to its historical high at 495 USD. However, such an advance would require a new catalyst for market optimism. A potential trigger could be the SpaceX IPO, although such a factor may prove temporary, and any resulting rally in AVGO could lack sustainability. Additionally, based on fundamental metrics, Broadcom shares appear overbought.

Risks of investing in Broadcom Inc. stock

When investing in Broadcom’s stock, it is essential to consider the risks the company may face. Below are the key events that could negatively impact Broadcom’s revenue:

• A slowdown in artificial intelligence spending: as AI is a key growth driver, any reduction in spending due to market saturation, an economic downturn, or shifting priorities could directly affect semiconductor revenue. Although investor expectations for AI-related growth are high, slower-than-expected progress could undermine investor confidence and earnings forecasts.
• Dependence on key clients: CEO Hock Tan has mentioned three major cloud clients developing their own AI chips. If these companies succeed, their reduced reliance on Broadcom could harm the profitability of its semiconductor segment.
• Geopolitical and trade risks: Broadcom is exposed to risks from escalating trade tensions between the US and China. Potential tariffs under the Trump administration or export restrictions on AI chips to China could disrupt supply chains or limit access to traditional markets.
• Competition in the semiconductor sector: Broadcom faces competitive pressures from companies like AMD and NVIDIA in the AI and networking solutions space. NVIDIA’s dominance in AI GPUs and the potential revival of Intel (with Broadcom reportedly interested in its chip business) could reduce Broadcom’s market share.

Open Account