Broadcom stock falls: why analysts are divided on the stock

Broadcom AVGO stock fell 3% on Thursday despite the semiconductor company reporting better-than-expected third-quarter results and sharply raising its outlook for artificial intelligence revenue.

The mixed market reaction came as several Wall Street firms adjusted their price targets following the results.

Evercore ISI lowered its target to $578 from $582 while maintaining an Outperform rating.

TD Cowen also cut its target to $475 from $500 but retained a Buy rating.

Morgan Stanley, meanwhile, raised its price target to $505 from $502, while Cantor Fitzgerald increased its target to $600 from $525. Both firms maintained Overweight ratings on the stock.

Broadcom beats estimates as AI revenue surges

Broadcom reported third-quarter revenue of $29.6 billion, an 86% increase from a year earlier and above Wall Street expectations of $29.4 billion, according to Fiscal.ai.

Adjusted earnings came in at $3.32 per share, compared with consensus expectations of $3.24.

AI semiconductor revenue more than tripled to $16.7 billion, highlighting the growing contribution of AI-related demand to Broadcom’s business.

For the fourth quarter, Broadcom forecast revenue of $34.8 billion, slightly below Wall Street estimates of $34.85 billion.

Despite the modest shortfall against expectations, the company expects AI semiconductor revenue to continue growing rapidly.

Broadcom sees AI semiconductor revenue reaching approximately $115 billion in fiscal 2027, compared with about $58 billion expected in fiscal 2026.

The company has also introduced a fiscal 2028 AI semiconductor revenue outlook of $230 billion, implying another potential doubling from the 2027 forecast.

Anthropic and OpenAI fuel AI growth expectations

Broadcom’s longer-term AI outlook is supported by demand from its major XPU customers and relationships with large AI companies.

BMO Capital raised its price target to $575 from $455 and maintained an Outperform rating, pointing to Broadcom’s relationships with six major AI customers.

The firm identified Anthropic and OpenAI as companies that appear to be expanding computing capacity particularly aggressively.

Anthropic announced a deal with Broadcom in April for multiple gigawatts of next-generation TPU capacity beginning in 2027 to support its Claude models.

OpenAI is working with Broadcom on 10 gigawatts of custom AI accelerators through 2029.

Macquarie upgraded Broadcom to Outperform with a $490 price target and expects Anthropic alone to purchase more than $40 billion from Broadcom in fiscal 2028.

Valuation and supply risks remain

Despite the strong growth outlook, analysts highlighted risks around Broadcom’s valuation, semiconductor sector multiples and supply constraints.

Evercore ISI described Broadcom’s results as solid and said the guidance pointed to significant future growth potential.

However, the firm attributed the stock’s decline partly to broader semiconductor-sector signals and compression in price-to-earnings multiples.

RBC Capital reiterated a Sector Perform rating and a $400 price target.

The firm said Broadcom’s fiscal 2027 AI revenue outlook of $115 billion was in line with its expectations but below consensus.

RBC also highlighted component supply and infrastructure readiness as potential constraints on Broadcom’s growth targets.

It noted that large language model companies have supply and financing agreements with multiple chipmakers and cloud providers, creating uncertainty around silicon allocation.

Broadcom is valued at approximately 18.5 times estimated calendar 2027 earnings, according to RBC, representing a premium of more than 30% to Nvidia on a stock compensation-adjusted basis.

The combination of strong AI demand, ambitious long-term revenue targets and valuation concerns leaves investors balancing Broadcom’s growth potential against the risks surrounding expectations and industry capacity.

Broadcom's share-price drop despite strong earnings highlights how quickly sentiment can shift, something active traders often follow closely through online trading platforms.