Key Points
Broadcom's AI semiconductor revenue grew 143% year over year in its fiscal second quarter.
The company guided for even faster AI growth in the current quarter.
Shares fell about 13% the day after the report, and they fell another 8% on Friday.
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Shares of semiconductor and software company Broadcom (NASDAQ: AVGO) closed at an all-time high on Tuesday, June 2. Then, after the market closed the next day, the chipmaker reported its fiscal second-quarter results (the period ended May 3, 2026) -- a record quarter, with artificial intelligence (AI) chip sales up 143% year over year and a sharply higher forecast for the current quarter. Yet the stock fell about 13% on Thursday and another 8% on Friday, erasing hundreds of billions of dollars in market value and dropping Broadcom's market capitalization back below $2 trillion.
So, why would investors sell a stock after a quarter like this?
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Record AI growth, with one soft spot
The results weren't the problem.
The explanation has more to do with how far the stock had already climbed heading into the report than with anything the company actually said.
First of all, Broadcom's AI semiconductor revenue hit a record $10.8 billion in the fiscal second quarter, up a staggering 143% year over year. This is a sharp acceleration from the prior quarter, when AI revenue rose 106% and came in at $8.4 billion. And management guided for it to accelerate further -- to roughly $16 billion in the fiscal third quarter, or growth of more than 200%.
The strength wasn't confined to AI, either.
Broadcom's revenue grew 48% year over year to a record $22.2 billion, led by the semiconductor solutions segment, which rose 79% to $15 billion. And non-GAAP (adjusted) earnings per share grew 54%, as Broadcom's profit margins held near record levels.
"Demand for XPUs and networking is simply insatiable," said CEO Hock Tan during the company's fiscal second-quarterearnings call referring to the custom AI chips and networking gear that now drive the bulk of the business.
But there was a softer spot. Broadcom's other segment, infrastructure software -- the enterprise software business anchored by its 2023 acquisition of VMware -- grew just 9% year over year to $7.2 billion. Set against 79% growth in chips, the single-digit pace stood out, and it was one of the few places the quarter fell short of the company's recent momentum.
A stock that got ahead of itself
None of that explains a 13% drop on its own. For that, look at the run-up. Broadcom had closed at a record high on Tuesday, the day before the report, capping a powerful climb that left little room for anything short of a blowout. When a stock has already priced in years of rapid growth, even an excellent quarter can disappoint.
It may not have helped that management reaffirmed, rather than raised, its target of more than $100 billion in AI semiconductor revenue in fiscal 2027. That figure is enormous either way. But for investors hoping a surging order book would lift the number higher, holding it steady could have read as a letdown.
Then there's the price. As of this writing, Broadcom trades at a price-to-earnings ratio of about 64 -- a rich valuation multiple that leans heavily on the AI growth continuing at a rapid pace for years. A valuation like that tends to amplify any disappointment, however small.
There are risks worth weighing, too. Broadcom's AI revenue leans on a handful of very large customers, so the delay or loss of a single program could weigh on results. And the broader wave of AI infrastructure spending could eventually slow, even if there's no sign of it yet.
So why did Broadcom's stock fall after a record quarter and forecast for even faster AI revenue growth in the current quarter? Not because the business stumbled. The more likely reason is that the shares had simply run ahead of even a fast-growing company's results, and Thursday's decline looks more like a reset of expectations than a judgment on the quarter itself. For long-term investors who believe the AI build-out still has years to run, a pullback might be a good opportunity to start a small position in the stock. But given how steep its valuation still is, investors should remain cautious.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom. 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.
