TLDR
- Broadcom stock fell more than 5% in after-hours trading despite AI revenue surging 221% year over year to $16.7 billion
- Total Q3 revenue rose 86% to $29.59 billion, beating estimates, with adjusted EPS of $3.32 vs. the $3.23 expected
- Q4 revenue guidance of $34.8 billion came in below the $35.03 billion analyst consensus
- Broadcom raised its fiscal 2027 AI revenue outlook to ~$115 billion, up from $100 billion, but some investors had expected $150 billion+
- Competition in custom silicon is growing, with Google reportedly expanding its work with rival Marvell
Broadcom posted what most companies would consider a blowout quarter. Then the stock dropped anyway.
AVGO fell more than 5% in after-hours trading on Wednesday after the chipmaker reported fiscal Q3 results. The stock was trading around $361.74 in overnight trading, down from its closing price of $367.24.
AI semiconductor revenue hit $16.7 billion, up 221% from a year ago and 54% sequentially. Total revenue grew 86% year over year to $29.59 billion, topping the $29.45 billion Wall Street expected. Adjusted earnings per share came in at $3.32, ahead of the $3.23 consensus.
By almost any measure, those are strong numbers. But the market had priced in something even bigger.
StoneX analyst Cody Acree, who holds a Buy rating on the stock, summed it up plainly: the beat was “not enough to keep investors happy.” He pointed to the bar Nvidia has set, noting that Broadcom’s roughly $300 million revenue beat looked modest compared to the blowouts Nvidia has delivered recently.
“The magnitude is just not quite enough,” Acree told Yahoo Finance.
Guidance Fell Short
The forward numbers added to the pressure. Broadcom guided for Q4 total revenue of approximately $34.8 billion, below the $35.03 billion analyst consensus from LSEG. Q4 AI semiconductor revenue was guided at $21.7 billion, up 236% year on year, but investors had still wanted more.
CEO Hock Tan did raise the long-term outlook. Broadcom now expects around $115 billion in AI semiconductor revenue for fiscal 2027, up from its prior forecast of $100 billion, and projects that figure could roughly double to $230 billion by fiscal 2028.
The problem is Morgan Stanley had already modeled $120 billion for fiscal 2027 before the report, and some investor expectations had drifted above $150 billion. So even a raised outlook landed below where parts of the market were positioned.
Competition Creeping In
The selloff was not only about sky-high expectations. Broadcom also faces a rising threat in custom silicon. Google has reportedly expanded its chip design work with Marvell, which raises questions about how much future accelerator spending Broadcom can hold onto.
JPMorgan analyst Harlan Sur argued before earnings that concerns about Broadcom’s Google relationship were overstated, pointing to the company’s long history and involvement in future TPU generations. BMO analyst Harsh Kumar has ranked Broadcom second only to Nvidia among AI chip suppliers.
AI chips and networking now account for more than half of Broadcom’s total semiconductor revenue, which reached $20.84 billion in the quarter.
Year to date, AVGO is up 6%, lagging Nvidia’s 20% gain.
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