Broadcom shares slid more than 13% in after-hours trading on June 3 after the company’s forecast for third-quarter AI semiconductor revenue fell short of Wall Street estimates, wiping out more than $270 billion in market value.
The company guided to $16 billion in AI chip revenue for the third quarter, about $1.2 billion below the consensus estimate of $17.2 billion. The miss on this single line item overshadowed otherwise strong results and an upbeat overall sales outlook, underscoring how tightly markets are focused on AI growth.
Strong quarter eclipsed by guidance shock
For the second quarter of fiscal 2026, Broadcom reported record results. Revenue rose 48% year on year to $22.19 billion, the fastest quarterly growth since 2017, and ahead of expectations. Adjusted earnings per share came in at $2.44, beating forecasts of $2.40, while adjusted EBITDA reached $15.2 billion, or 69% of sales.
AI semiconductor revenue surged 143% from a year earlier to $10.8 billion, slightly above the company’s prior guidance of $10.7 billion. Management said growth was led by custom AI accelerators and strong networking demand.
Semiconductor solutions revenue totaled $15.01 billion, up 79% year on year. Within that, non-AI chip revenue reached $4.2 billion, rising 6%.
Infrastructure software revenue, which includes VMware operations, increased 9% to $7.18 billion, though that fell about $140 million short of market expectations.
Broadcom also continued to generate substantial cash. Free cash flow for the quarter was $10.26 billion, equal to 46% of revenue. Quarter-end cash holdings stood at $19.63 billion, up $5.4 billion from the prior period.
Third-quarter outlook tops on total revenue, lags on AI detail
For the third quarter, Broadcom forecast total revenue of $29.4 billion. That implies an 84% year-on-year increase and is above consensus estimates of $28.54 billion.
The company maintained its full-year AI chip revenue guidance and reiterated its long-term target of more than $100 billion in AI semiconductor sales by fiscal 2027. However, it did not raise longer-term forecasts, and the near-term AI chip outlook failed to match the market’s more aggressive assumptions.
That gap on AI expectations drove the after-hours selloff, even as the broader revenue outlook came in ahead of analyst models.
Valuation and market setup amplified move
The reaction came after a powerful run-up in Broadcom’s shares this year. Before the earnings release, the stock was up nearly 40% year to date and trading at roughly 90 times earnings, well above the industry average multiple of about 69 times. Options markets had already priced in a one-day move of around 7.8%, higher than the company’s typical post-earnings volatility.
Against that backdrop, the lower-than-expected AI chip figure intensified selling pressure, suggesting a low tolerance for any perceived cooling in AI momentum.
Shift in AI networking mix
On the earnings call, CEO Hock Chen signaled a change in the mix of AI-related sales. He said AI networking revenue, which accounted for about 40% of AI semiconductor sales this quarter, is expected to normalize toward 30% over time.
That implies a reduced relative contribution from networking, a segment that has supported valuations for optical module suppliers in China and other ecosystem players. The adjustment suggests that while total AI demand is expected to grow, the composition of that demand may evolve.
Spillover across the semiconductor sector
Broadcom’s update triggered immediate moves across related names. Marvell shares dropped about 9% in extended trading before trimming losses to roughly 6%. Shares of Astera Labs and Credo Technology also fell after the announcement.
Analysts are now watching how Asian suppliers, including major memory producers, respond to the cooler tone around near-term AI-related demand, even as longer-term projections remain robust.
Industry outlook remains strong despite single-stock shock
The disappointment on Broadcom’s AI guidance arrived just two days after the World Semiconductor Trade Statistics organization issued a sharply upgraded forecast for the global chip industry.
WSTS now expects the global semiconductor market to expand by 89.9% by 2026 to $1.51 trillion, a dramatic jump from its previous growth estimate of 26.3%. The revision is driven by data center investment and AI demand, suggesting that underlying structural demand for chips remains strong.
This contrast between a booming industry forecast and the sharp reaction to one company’s guidance highlights the gap between long-term fundamentals and short-term positioning in AI-related names.
What traders are watching next
Traders are focused on several key signals in the weeks ahead:
- Capital expenditure plans from major cloud service providers, whose AI-related spending translates directly into chip orders. Alphabet, for example, recently raised its planned capital spending for the year.
Chen reiterated that Broadcom still expects AI demand to expand and maintained the $100 billion AI revenue target for 2027. Market participants will closely monitor upcoming earnings calls from large cloud platforms and other semiconductor leaders to determine whether Broadcom’s outlook marks a company-specific recalibration or an early sign of a broader adjustment in AI expectations.
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