Broadcom Posts Record AI Revenue but Guidance Disappointment Sends Shares Sliding

A Record Quarter That Wall Street Shrugged Off

On paper, Broadcom's fiscal third-quarter results looked like a triumph. The company reported record third-quarter revenue, operating income, and free cash flow, driven by sharply higher demand for artificial intelligence semiconductors and custom AI accelerators, with revenue rising 86% year over year to $29.6 billion. Net income more than tripled to $13.09 billion, or $2.68 per share, from $4.14 billion, or 85 cents per share a year earlier. By almost any measure, those are stunning numbers. But Wall Street's reaction told a different story.

Broadcom shares dropped 5% in extended trading on Wednesday after the chipmaker issued disappointing guidance for the current quarter. For the fiscal fourth quarter, Broadcom said it expects revenue of $34.8 billion, while analysts were expecting $35.03 billion, according to LSEG. A miss of roughly $230 million — on a base of nearly $35 billion — was enough to rattle investors who had priced in perfection.

The AI Engine Is Running Hot

CEO Hock Tan said AI semiconductor revenue grew 221% year over year and 54% sequentially to $16.7 billion during the quarter. That kind of growth is almost unheard of at this scale. During the quarter, Broadcom touted the custom Jalapeno chip it developed with OpenAI, while Apple said it would spend more with Broadcom for U.S. chip production. These aren't small side projects — they represent the next generation of AI infrastructure that major tech companies are racing to build.

Looking further ahead, Broadcom forecasts fiscal 2026 AI revenue of $58 billion, up 186% year over year, with a fiscal 2027 AI revenue outlook of approximately $115 billion and a fiscal 2028 target of approximately $230 billion. Broadcom has been one of the major winners of the artificial intelligence boom, designing custom chips for companies including Google, Meta, and OpenAI. The company's custom chip strategy — tailoring silicon specifically to each customer's workload — gives it a competitive edge that off-the-shelf chip makers simply can't replicate.

Strong Numbers, Lagging Stock

Here's the paradox that has frustrated Broadcom investors all year. The stock has jumped by more than sixfold since the end of 2022, coinciding with the emergence of ChatGPT and other generative AI services, pushing its market cap to about $1.8 trillion. Yet despite that long-run success, the stock has been a relative underperformer lately. Broadcom shares have gained just 6% so far this year, lagging behind the broader chip sector, which has risen 60%.

During the third fiscal quarter, the company generated $14.2 billion in cash from operations and spent $0.5 billion on capital expenditures, resulting in $13.7 billion of free cash flow. By business segment, revenue from the Semiconductor Solutions division reached $20.839 billion, surging 127% year over year, while revenue from the Infrastructure Software division reached $8.752 billion, up 29% year over year. The cash generation alone would be the envy of most companies in any industry — yet the market's focus remained squarely on that guidance shortfall.

What Comes Next

The tension here is familiar to anyone who has followed high-growth tech stocks: when expectations are sky-high, even exceptional results can disappoint. The increased volatility is the result of uncertainty about the future of artificial intelligence and just how long the accelerating adoption will continue. Broadcom's underlying business is firing on all cylinders, but the stock's valuation leaves little room for even minor guidance misses.

Tan said the company has secured supply to support its fiscal 2027 AI revenue outlook and has line of sight to supply needed for its fiscal 2028 target, projecting AI revenue that would effectively double every year through 2028. Whether the market is willing to reward that ambition — or continue to punish any hint of a stumble — may define Broadcom's stock story for the rest of the year and well into the next.