Broadcom (NASDAQ:AVGO) shares have retreated roughly 21% from their early-June peak, even as the company continues to post some of the fastest AI-driven growth in the semiconductor sector. The stock closed at $380 on Tuesday, down 3.2% on the day and well below its June 2 record close of $481.57.
The decline accelerated after the company's fiscal second-quarter results failed to clear an exceptionally high bar set by Wall Street. That disconnect is at the heart of the current debate, with some analysts arguing the market has overreacted to what was still a robust earnings report.
Expectations vs. AI Demand
Broadcom's fiscal second-quarter revenue rose 48% year over year to a record $22.2 billion, while AI semiconductor revenue jumped 143% to $10.8 billion. CEO Hock Tan guided for AI semiconductor sales of $16 billion in the third quarter, representing growth of more than 200%.
However, the market had been expecting even more. Wall Street had penciled in about $17.2 billion for third-quarter AI revenue, and analysts were modeling roughly $114 billion for fiscal 2027. Broadcom merely reiterated its target of more than $100 billion for that year, which disappointed some investors.
Cantor Fitzgerald analysts, led by C.J. Muse, noted that investors were disappointed by the softer AI outlook, gross-margin guidance, and the decision to simply reiterate the 2027 target. Despite that, Cantor maintained an Overweight rating and a $525 price target.
Bullish Counterpoints
Nova Capital, a contributor on TipRanks, argues the selloff has gone too far. "Overall, the earnings update for fiscal Q2 wasn't as bad as the market perceived it," Nova said, pointing to Broadcom's custom-chip expertise and dominant position in high-end networking. Applying roughly 30 times fiscal 2027 earnings yields a valuation of $585.90, implying about 54% upside from Tuesday's close.
That target is close to JPMorgan's view. Analysts Harlan Sur and Mayur Ramdhani said they would be "aggressive buyers" after the June decline. JPMorgan maintained an Overweight rating and a $580 target, citing Broadcom's intellectual property, custom-chip capabilities, its relationship with Google, and networking leadership.
Oppenheimer's Rick Schafer has also remained bullish. According to Barron's, Schafer described management's tone as "bullish" and said Broadcom had clear line of sight into 2026 deployments.
Google Risk Remains
The bull case is not without a notable risk. Macquarie downgraded Broadcom to Neutral after the June report, cutting its price target to $437 from $513, citing Google's push to develop more AI-chip capabilities internally. The firm expects Broadcom's share of that business to decline meaningfully in 2027.
That matters because custom AI accelerators are central to Broadcom's long-term growth story. The company helps hyperscalers design specialized chips while also supplying the networking technology that connects increasingly large AI clusters.
Expectations remain demanding enough that simply meeting guidance may not be enough to restart the rally. As the market digests the recent pullback, investors are weighing the strength of Broadcom's AI momentum against the potential for customer concentration and the high bar set by consensus estimates.
For context, other chip names have faced similar dynamics. Micron's recent 30% drop also split Wall Street, while AMD's margin concerns have prompted a similar debate. Broadcom's situation underscores the delicate balance between growth and valuation in the AI trade.
This article is for informational purposes only and does not constitute financial advice.
