Why Is Broadcom Inc. (AVGO) Down 3.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Broadcom Inc. (AVGO). Shares have lost about 3.8% in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Broadcom Inc. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
AVGO Q3 Earnings Beat Estimates, Revenues Rise on Strong AI Demand
Broadcom reported third-quarter fiscal 2026 non-GAAP earnings of $3.32 per share, up 96.4% year over year and 3.11% above the Zacks Consensus Estimate.
Revenues surged 85.5% year over year to $29.59 billion and beat the consensus mark by 0.41%. Strong custom AI accelerator and networking demand drove the quarterly results. AI semiconductor revenues jumped 221% year over year to $16.7 billion.
AVGO’s AI Semiconductor Growth Accelerates
AI semiconductor revenues represented 56% of total revenues. XPU shipments increased more than 3.5 times year over year and accounted for 73% of AI revenues, while AI networking revenues rose more than 2.5 times.
Broadcom shipped Ironwood TPU v7 in high volume to Anthropic and Google, began production shipments of Google’s next-generation TPU v8i and shipped OpenAI’s first-generation Jalapeno custom accelerator. AVGO expects Meta’s MTIA accelerator to enter production shipments in the fourth quarter.
Semiconductor Solutions revenues surged 127% year over year to a record $20.84 billion and represented 70% of total revenues. Non-AI semiconductor revenues were $4.2 billion, up 5% year over year and flat sequentially.
The segment's operating margin rose 440 basis points (bps) year over year to 61% as revenue growth outpaced operating expense growth. Broadcom continues to invest in research and development while expanding capacity for substrates and optical components to support semiconductor demand.
AVGO's Software Business Extends Growth
Infrastructure Software revenues increased 29% year over year to $8.75 billion and contributed 30% of total revenues. Annualized recurring revenue (ARR) grew 15% year over year.
Software operating margin expanded 650 bps year over year to roughly 84%.
Broadcom also introduced VMware Private AI Cloud, aimed at letting enterprises run AI alongside existing applications while maintaining security, compliance and control over data.
Broadcom Expands Operating Profitability
Non-GAAP gross margin was $22.19 billion, translating to a 75% gross margin. The margin declined 210 bps sequentially as AI semiconductor revenues became a larger part of the sales mix.
Non-GAAP operating expenses were $2.1 billion compared with $2.04 billion a year earlier.
Non-GAAP operating income increased 92% year over year to $20.1 billion, while the operating margin reached 67.9%, reflecting operating leverage from the sharp revenue increase.
AVGO Generates Record Free Cash Flow
The company ended the quarter with $24 billion in cash and cash equivalents.
Broadcom generated $14.20 billion in cash from operations and spent $532 million on capital expenditures. Free cash flow reached a record $13.67 billion, equal to 46% of revenues.
AVGO paid $3.1 billion in dividends and reduced long-term debt by $5.6 billion during the quarter. The board also approved a quarterly dividend of 65 cents per share.
Broadcom Guides for Stronger Q4 AI Growth
For the fourth quarter of fiscal 2026, Broadcom expects revenues of approximately $34.8 billion, representing 93% year-over-year growth.
Semiconductor revenues are projected at about $26.1 billion, including $21.7 billion of AI semiconductor revenues, up 236%.
Infrastructure Software revenues are expected at roughly $8.7 billion. Broadcom forecasts a non-GAAP operating margin of about 66% and a gross margin of approximately 73% as the mix shifts further toward XPUs with higher memory content.
AVGO Raises Its Fiscal 2026 AI Revenue View
Broadcom now expects fiscal 2026 AI semiconductor revenues of $58 billion, up 186% year over year and above its prior $56 billion outlook. The company has secured supply to support approximately $115 billion of AI semiconductor revenues in fiscal 2027.
AVGO also sees fiscal 2028 AI semiconductor revenues reaching $230 billion. The company said demand exceeds its fiscal 2027 outlook, while deployment timing depends on factors including data-center readiness, leading-edge silicon, substrates and memory supply.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
At this time, Broadcom Inc. has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock has a score of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Broadcom Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Broadcom Inc. belongs to the Zacks Electronics - Semiconductors industry. Another stock from the same industry, Marvell Technology (MRVL), has gained 28.4% over the past month. More than a month has passed since the company reported results for the quarter ended July 2026.
Marvell reported revenues of $2.74 billion in the last reported quarter, representing a year-over-year change of +36.5%. EPS of $0.94 for the same period compares with $0.67 a year ago.
For the current quarter, Marvell is expected to post earnings of $1.10 per share, indicating a change of +44.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -0% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Marvell. Also, the stock has a VGM Score of F.
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This article originally published on Zacks Investment Research (zacks.com).
