Key Points
Broadcom beat on top and bottom lines last night.
Sales grew 48% year over year, with free cash flow and profits growing even faster.
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Broadcom (NASDAQ: AVGO) stock tumbled 15.2% through 9:50 a.m. ET Thursday despite beating analyst forecasts for Q2 2026 earnings last night.
Heading into the report, analysts forecast Broadcom would earn $2.39 per share on sales of just over $22 billion. Broadcom beat on both top and bottom lines, claiming non-GAAP earnings of $2.44 per share and sales of nearly $22.2 billion.
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Broadcom Q2 earnings
The earnings news was both worse and better than the above makes it sound. Worse, because in contrast to "$2.44" in pro forma earnings, actual GAAP earnings were only $1.91 per share. And better, because even just $1.91 per share in profit represents an 85% year-over-year surge for the semiconductor company.
Free cash flow increased by 60%, and sales grew 48% year over year. The fact that both earnings and free cash flow outpaced sales growth, moreover, tells you that Broadcom's profit margins are rising.
Much of the growth in sales, margins, profits, and FCF can be chalked up to insatiable demand for artificial intelligence chips in general, and (probably -- Broadcom didn't say this outright) demand for TPU AI data center chips developed for Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) in particular. Broadcom CEO Hock Tan noted that AI semiconductor revenue is accelerating, with AI chips making up nearly 50% of total revenue, and growing nearly three times as fast as total sales growth -- 143% year-over-year.
What's next for Broadcom?
Investors' complaint seems to be that, no matter how fast Broadcom is growing and how profitably it's doing so, they want it to grow even faster. But here's the thing: Guidance for Q3 sales is $29.4 billion. Wall Street was only expecting $28.5 billion. So Broadcom beat, and Broadcom raised, but it's selling off anyway.
Sometimes, there's just no pleasing people.
Should you buy stock in Broadcom right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and 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.
