Shares in Broadcom (NASDAQ:AVGO) fell sharply after fiscal Q2 2026 results despite another quarter of explosive AI-driven growth.
The reaction highlights a key reality for investors: Broadcom is no longer judged on whether it is growing rapidly, but whether it can exceed increasingly ambitious expectations.
| Broadcom (NASDAQ:AVGO) | Price: $415.08 (-13.4%) | Market cap: $1.97tn |
Broadcom delivered another earnings beat, driven by demand for AI accelerators and networking products used in hyperscale data centres. AI revenue alone increased 143% year-on-year to $10.8 billion.
Q2 FY2026 results snapshot
| Metric | Q2 FY2026 | YoY Growth | Consensus |
| Revenue | $22.19bn | +48% | ~$22.1-22.3bn |
| Adjusted EPS | $2.44 | +54% | ~$2.40 |
| AI Semiconductor Revenue | $10.8bn | +143% | ~$10.7bn |
| Semiconductor Revenue | $15.0bn | +79% | Beat |
| Infrastructure Software Revenue | $7.2bn | +9% | In line |
Why did the stock fall?
The market reaction appears to be a classic case of expectations running ahead of fundamentals.
Ahead of results, Broadcom shares had surged more than 50% in three months and recently reached record highs above $480. Investors were hoping management would substantially raise its long-term AI outlook. Instead, Broadcom reaffirmed its existing target of reaching $100 billion in annual AI semiconductor revenue by 2027 rather than increasing it.
After the announcement, shares dropped sharply, with pre-market data implying an opening fall of ~13%.
Guidance remains extremely strong
The irony is that Broadcom actually raised the bar again. Management expects AI semiconductor revenue to reach $16 billion next quarter, representing more than 200% annual growth. Total revenue guidance of $29.4 billion was ahead of Wall Street expectations.
| Guidance Metric | Q3 FY2026 |
| Revenue | $29.4bn |
| Revenue Growth | +84% YoY |
| AI Revenue | $16bn |
| AI Growth | >200% YoY |
CEO Hock Tan highlighted continued demand from hyperscale customers including custom AI accelerator programmes and networking deployments. Major customers are reported to include Alphabet (NASDAQ:GOOG), Meta Platforms (NASDAQ:META), OpenAI and Anthropic.
The AI opportunity
Broadcom’s investment case increasingly revolves around three areas:
- Custom AI accelerators (ASICs) competing alongside Nvidia GPUs.
- AI networking infrastructure, where Broadcom is a market leader.
- VMware software, which provides recurring cash flows supporting investment and shareholder returns.
Unlike many AI companies, Broadcom benefits regardless of which large AI model wins because it supplies critical networking technology and custom silicon to multiple hyperscalers. Analysts continue to view Broadcom as one of the biggest beneficiaries of AI infrastructure spending outside of Nvidia (NASDAQ:NVDA).
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Analyst reaction
Several analysts described the results as fundamentally strong but insufficient to justify the extraordinary expectations built into the share price.
The main disappointment was not current performance but the lack of an upward revision to Broadcom’s already ambitious $100 billion AI revenue target for 2027.
Many analysts continue to see Broadcom’s custom-chip strategy as one of the strongest long-term growth opportunities in the semiconductor industry, particularly as hyperscalers seek alternatives and complements to Nvidia’s GPU ecosystem.
Valuation analysis
The challenge for investors is valuation.
Broadcom remains one of the highest-quality AI infrastructure businesses globally, but the share price had already priced in years of exceptional execution. When a stock becomes valued for perfection, even strong results can trigger profit-taking.
| Valuation Factor | Assessment |
| Revenue Growth | Exceptional |
| AI Exposure | Among highest in sector |
| Profitability | Industry-leading |
| Free Cash Flow | Very strong |
| Valuation Risk | Elevated |
The post-earnings sell-off may therefore reflect a reset in expectations rather than any deterioration in Broadcom’s underlying business.
Bottom line for UK retail investors
Broadcom’s quarter reinforces its status as one of the world’s premier AI infrastructure companies. Revenue grew 48%, AI revenue surged 143%, earnings beat expectations and guidance points to even faster growth next quarter.
However, with the stock having more than doubled over the past year, investors were demanding an even bigger upgrade to the long-term AI outlook. The sharp sell-off appears driven by valuation and expectations rather than fundamentals.
Broadcom fell sharply after fiscal Q2 2026 results despite another quarter of explosive AI-driven growth. For long-term UK investors seeking exposure to AI data-centre spending, Broadcom remains one of the highest-quality names in the market. The key question is no longer whether the company can grow rapidly—it is whether it can grow fast enough to justify a valuation that assumes continued AI dominance for many years.
Disclaimer: The author Steven Frazer has a personal interest in Broadcom
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