Broadcom’s AI revenue surged 221%, so why did the stock tumble 5%?

Broadcom more than tripled its AI semiconductor revenue and investors responded by selling the stock.

The chipmaker reported $16.7 billion of AI revenue, up 221% from a year earlier and 54% sequentially. Total revenue rose 86% to $29.59 billion, while adjusted earnings nearly doubled to $3.32 a share.

Yet Broadcom fell more than 5% in after-hours trading before recovering some ground.

StoneX analyst Cody Acree told Yahoo Finance the results were “not enough to keep investors happy.”

The problem was not weak growth, but that Wall Street had expected something even more spectacular.

Broadcom crushed AI growth but investors wanted a bigger surprise

Broadcom’s semiconductor revenue reached $20.84 billion, meaning AI chips and networking now account for more than half of company sales.

Chief executive Hock Tan raised the long-term stakes. Broadcom now expects about $115 billion of AI semiconductor revenue in fiscal 2027, up from its previous forecast of more than $100 billion, and sees that figure doubling to roughly $230 billion in fiscal 2028.

Operationally, those are extraordinary numbers.

But Acree argued that Nvidia has changed what investors expect from AI-chip companies. Broadcom beat quarterly revenue expectations by roughly $300 million, while the increases elsewhere were modest.

“The magnitude is just not quite enough,” Acree told Yahoo Finance, contrasting Broadcom’s result with the much larger beats and raises Nvidia recently delivered.

Broadcom also forecast $21.7 billion of AI semiconductor revenue for the fourth quarter, up 236% year on year. Investors wanted an even bigger reset.

Nvidia has made great earnings dangerously ordinary

Morgan Stanley had identified the problem before Broadcom reported.

“The main risk into the print is expectations rather than fundamentals,” the bank said in a note reported by TheStreet.

Morgan Stanley modelled roughly $120 billion of fiscal 2027 AI revenue, but TheStreet said some investor expectations had moved above $150 billion.

Broadcom’s new $115 billion forecast therefore represented an improvement from management’s previous outlook while still landing below some of the more aggressive numbers circulating in the market.

The fourth-quarter outlook added to the disappointment.

Broadcom guided for total revenue of about $34.8 billion. Analysts surveyed by LSEG expected $35.03 billion, although other consensus providers had slightly lower forecasts.

That helps explain the unusual reaction. Investors were not comparing Broadcom’s numbers only with published consensus. They were comparing them with the upside surprise they believed an AI leader should deliver.

The AI thesis is intact but new risks remain

The selloff was not entirely about impossible expectations.

Broadcom faces growing competition in custom silicon. Google has expanded its work with Marvell, raising questions about how much of future TPU and adjacent chip spending Broadcom can retain.

JPMorgan analyst Harlan Sur argued before earnings that concerns about Broadcom’s Google position were overstated, according to MarketWatch, citing its long-standing relationship and work across future TPU generations.

BMO analyst Harsh Kumar has ranked Broadcom behind only Nvidia among AI-chip suppliers, calling it the leading provider in custom accelerators and networking.

Still, the valuation assumes Broadcom converts enormous customer commitments into revenue while protecting its economics as competitors chase the same opportunity.