Is Broadcom a Buy After Its Latest Earnings Report?

Key Points

• Broadcom set a record for revenue in the second quarter.

• The company chose not to raise guidance for AI chip sales, sending the stock down.

• 10 stocks we like better than Broadcom ›

There was good and bad to be found in Broadcom's (NASDAQ: AVGO) second-quarter earnings report. On the one hand, revenue jumped 48% to $22.19 billion. And earnings of $2.44 per share were better than analysts' consensus expectations of $2.40 per share.

However, Broadcom projected that artificial intelligence chip sales would reach $16 billion in the third quarter, below analysts' expectations of $17.2 billion. The company also maintained its full-year target of $100 billion in AI chip sales rather than raising it. That sent investors scrambling, and Broadcom stock fell more than 12% in after-hours trading today.

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Let's take a closer look at the report and what red flags the Street is seeing as Broadcom sells off following its Q2 earnings report.

Image source: The Motley Fool.

Broadcom's earnings at a glance

Broadcom, which makes semiconductors and related infrastructure to power AI, reported record revenue in its second-quarter report (ending May 3, 2026). Specifically, semiconductor revenue from AI totaled $10.8 billion, up 143% from a year ago. Free cash flow was $10.26 billion, and the company spent $231 million on capital expenditures. Total net income was $12.07 billion, up 55% from a year ago, and EPS was up 54% from last year.

The company's semiconductor unit grew at a 79% clip as chip sales continue to drive the business. Semiconductors alone generated $15 billion in net revenue in the second quarter, which was as much as the entire company made in the same quarter a year ago. Infrastructure software sales, which include much of the business it acquired through its 2023 purchase of VMware, increased just 9% to $7.17 billion.

Source: Broadcom

Broadcom is a leading maker of AI chips, but it largely operates in a different lane than Nvidia, whose strong chip sales have pushed its valuation to around $5.5 trillion. Instead, Broadcom designs custom chips, known as application-specific integrated circuits (ASICs), tailored to the workloads they need to handle. The result is that the chips aren't as powerful or flexible as Nvidia's do-it-all graphics processing units, but they can be just as efficient for specific tasks and are more affordable.

The company has a long-term partnership with Alphabet to supply the company's tensor processing units (TPUs), which are Alphabet's in-house alternative to Nvidia GPUs. Alphabet recently increased its planned capital expenditure for this year from $185 billion to $190 billion, and the company is now making its TPUs available to other data center operators.

On the company'searnings call CEO Hock Tan said the company has six core custom chip customers, including Anthropic, Alphabet, Meta Platforms, and OpenAI, that are primarily responsible for Broadcom's growth in AI revenue.

"We expect this momentum to continue into fiscal year 2027 and reiterate our AI semiconductor revenue guidance to be in excess of $100 billion," Tan said.

This is a time to reset expectations

While there's a lot to like about Broadcom's quarter, the market isn't reacting well to the report -- particularly that it didn't raise its $100 billion sales guidance. But Daniel Newman, CEO of the analyst firm Futurum Group, said the report "feels more like an expectations reset than thesis damage."

The company's plan to ship 10 gigawatts of AI compute capacity is still intact, Newman said, with more planned for 2028. "AI compute demand is accelerating faster than expected, while dollars per gigawatt remain relatively stable," he said. "Bottom line: Broadcom is running pure offense."

Broadcom stock is still up 38% so far this year, but the drop of 12% post-earnings today indicates the market is less than impressed with Broadcom's quarter. However, resetting expectations isn't disastrous, and it doesn't change the long-term story for Broadcom.

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Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.