TLDR
- Broadcom’s Q2 revenue hit a record $22.2 billion, up 48% year-over-year, with AI semiconductor revenue surging 143% to $10.8 billion
- Q3 AI revenue guidance of ~$16 billion came in slightly below some analyst expectations, triggering a sell-off of more than 20% from its recent all-time high of $495
- Operating margin reached a record 67.3% in Q2, and management expects it to hold around 67% in Q3
- HSBC raised its price target on AVGO to $600 and maintained a Buy rating, citing ASIC revenue growth and multi-year customer commitments with Google, Meta, Anthropic, and OpenAI
- TipRanks consensus is Strong Buy, with an average 12-month price target of $512.88, implying ~29% upside from the current price of $396.60
Broadcom posted record Q2 results last week, but the stock sold off sharply anyway. AI revenue guidance for Q3 came in just below what some on Wall Street were expecting, and that was enough to send AVGO down more than 20% from its all-time high of $495. The stock currently trades around $396.60.
To be clear: the guidance wasn’t bad. Management forecast roughly $16 billion in AI semiconductor revenue for Q3 — up more than 200% year-over-year — and reiterated its target of more than $100 billion in AI revenue by Fiscal 2027. The market had simply set the bar very high.
Q2 revenue came in at a record $22.2 billion, up 48% year-over-year. AI semiconductor revenue alone jumped 143% to $10.8 billion. AI bookings topped $30 billion for the quarter.
Free cash flow hit a record $10.3 billion, equal to 46% of revenue. The company’s debt-to-equity ratio improved to 0.74, down from 1.0 a year ago and 1.65 two years ago.
Margin Mix, Not Margin Weakness
One concern that fueled the sell-off was gross margin compression. Consolidated gross margin fell 230 basis points year-over-year to 77.1%, and is expected to drop further to around 74% in Q3.
But the reason matters here. AI semiconductors carry lower gross margins than software. As AI becomes a bigger slice of Broadcom’s revenue, consolidated margins will naturally compress. It’s a mix shift, not a profitability problem.
Operating margin tells a better story: a record 67.3% in Q2, with management guiding for roughly 67% again in Q3.
Infrastructure software revenue also held up well, reaching $7.2 billion in Q2, up 9% year-over-year, with gross margins near 93%.
HSBC Raises Price Target to $600
On June 2, HSBC analyst Frank Lee raised his price target on AVGO to $600, up from $450, while keeping a Buy rating. Lee pointed to ASIC revenue momentum accelerating through the second half of FY2026 and into FY2027.
He noted that Broadcom is set to supply Google’s TPU v7, which carries a higher average selling price than v6. Meta is also ramping its own ASIC. Anthropic and OpenAI have been added under multi-year agreements set to begin in FY2026 and FY2027.
HSBC now estimates Broadcom’s ASIC revenue at $46 billion for FY2026 and $100.2 billion for FY2027 — 23% and 26% above Street consensus, respectively.
Concerns about Broadcom losing Google’s TPU business in 2028 were also addressed. HSBC pointed to a supply agreement between the two companies running through 2031.
On valuation, AVGO trades at roughly 37.1x forward earnings. That compares to Marvell at 65.3x and AMD at 62.5x.
TipRanks currently shows a Strong Buy consensus rating based on 27 analyst ratings over the past three months: 24 Buys, 3 Holds, and zero Sells. The average 12-month price target stands at $512.88.
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