The semiconductor space is starting to split. The iShares Semiconductor ETF (SOXX) is up more than 90% so far this year, but not every stock is keeping up. A few names are surging on AI demand, while others are lagging behind. A big reason for this has to with expectations.
AI chip revenue is on track to pass $1 trillion in 2026, up almost 31% year-over-year (YOY), and the largest cloud players are expected to spend about $500 billion on capex this year. In this kind of market, anything short of a strong outlook can trigger a sharp selloff, and that is exactly what happened to Broadcom (AVGO).
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On June 3, Broadcom reported fiscal second-quarter 2026 results that beat earnings expectations, but AVGO stock still fell more than 12% the next day. Revenue came in at $22.19 billion, showing solid growth but slightly missing expectations. The bigger issue was guidance. Management kept its AI revenue forecast at about $56 billion for 2026 and over $100 billion for 2027 instead of raising it.
With Broadcom still up more than 35% from its 2026 lows, AI chip orders running ahead of shipments, and Bernstein analyst Stacy Rasgon already raising his price target to $550, the key question now is simple: Is the market overreacting to cautious guidance, or is this the start of a broader reset in AI chip stocks? Let’s take a closer look.
Inside Broadcom's Latest Financial Results
Broadcom makes chips and software used in data centers, broadband, and enterprise systems — all areas seeing strong demand from AI. The stock has still been on a solid run, up more than 60% over the past year and 14% so far this year.
www.barchart.com That said, the valuation is getting attention. AVGO stock trades at a forward price-to-earnings (P/E) of 42 times, well above the sector average near 26 times, which shows investors are expecting strong growth ahead. Broadcom also returns cash to shareholders consistently, with a $0.65 quarterly dividend, a 38.97% payout ratio, and a 15-year streak of dividend increases. The yield is around 0.62%, which is lower than the tech average but still steady.
Broadcom's latest results were strong across the board. Revenue jumped 48% YOY to $22.19 billion. GAAP net income came in at $9.31 billion, while non-GAAP net income was $12.07 billion. Adjusted EBITDA reached $15.24 billion, or 69% of revenue, showing strong margins. EPS was $1.91 on a GAAP basis and $2.44 on a non-GAAP basis.
The company also generated $10.26 billion in free cash flow, equal to about 46% of revenue. For the next quarter, Broadcom expects about $29.4 billion in revenue, with margins around 67% to 68%.
Structural Growth Drivers Remain Intact
Broadcom is pushing deeper into AI and connectivity with new broadband products built for faster and more responsive networks. Its lineup includes a 50G PON gateway chip, a full set of Wi-Fi 8 products, and a combined 5G and Wi-Fi 8 fixed wireless platform. These are built to reduce delays, handle more data locally, and keep performance steady, which matters as AI tools need near-instant response times. The chips also combine standard processing with neural processing, so devices can handle some AI tasks on their own instead of relying fully on the cloud.
That effort also includes partnerships. Broadcom is working with Samsung Electronics to combine its BCM6776 Wi-Fi 8 chip with Samsung’s B1320 5G modem. The result is a single platform that brings together 5G and Wi-Fi 8, aimed at delivering fast and reliable broadband.
On the hardware side, Broadcom launched the BCM68850, a 50G PON gateway chip with built-in neural processing and Wi-Fi 8 support. It fits into a wider lineup across cable, PON, Wi-Fi, and set-top boxes, all designed to handle large bursts of data with very low delay.
What Do Analysts Think of AVGO Stock?
Broadcom is scheduled to report its next earnings on Sept. 3, 2026. Analysts expect earnings of $2.75 per share for the July quarter, compared with $1.26 in the same period last year. For the October quarter, the consensus forecast is $3.32 versus $1.61 a year earlier. For the full fiscal year ending October 2026, analysts are projecting $9.97 per share, a sharp increase from $5.63 in the prior fiscal year.
Even after the recent drop, Jefferies analyst Blayne Curtis raised his price target to $550 — which suggests about 39% potential upside — and called the selloff a buying opportunity. Curtis did note that a higher mix of ASICs could pressure margins in the short term, but believes strong AI revenue growth will more than make up for it, especially into fiscal 2027.
HSBC's Frank Lee is even more bullish. Lee kept a “Buy” rating and lifted his target to $600, which is about 52% above current levels. His view is that Broadcom's ASIC opportunity is still being underestimated, with his forecasts at $46 billion for 2026 and $100.2 billion for 2027, both well above current Street estimates.
Overall, sentiment is firmly positive. Based on 42 analysts with coverage, AVGO stock has consensus “Strong Buy” rating. The average price target is $507.13, implying about 28% potential upside from current levels.
www.barchart.com Conclusion
Broadcom’s pullback looks less like a breakdown and more like a reset after expectations ran too hot. The company is still delivering strong growth, throwing off significant cash, and positioning itself at the center of AI infrastructure, even if near-term guidance did not clear the market’s elevated bar. With earnings estimates climbing and analysts broadly pointing to meaningful upside, the weight of the evidence still leans bullish. From here, shares of AVGO are more likely to stabilize and grind higher as execution catches up with demand rather than signal a deeper unwind in the AI chip trade.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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