Author: Ada, Deep Tide TechFlow
After U.S. markets closed on June 3rd EST, Broadcom announced its fiscal year 2026 second-quarter results for the period ending May 3, 2026. In absolute terms, this was a record-breaking quarterly report. Revenue reached $22.19 billion, a 48% year-over-year increase, marking the highest single-quarter growth rate for the company since January 2017. Adjusted EPS was $2.44, surpassing the analyst consensus estimate of $2.40. However, the market's focus was not on Q2, but on Broadcom's guidance for Q3 AI chip revenue: $16 billion, representing year-over-year growth of over 200%, but falling short of the sell-side consensus estimate of $17.2 billion by nearly 7 percentage points. This discrepancy, coupled with a slight miss in the company's software business expectations, triggered a sharp reaction in the stock price.
Q2 Performance Nearly Perfect, AI Semiconductor Revenue Grows for 13 Consecutive Quarters
According to Broadcom's official disclosure, Q2 AI semiconductor revenue reached $10.8 billion, a 143% year-over-year increase, exceeding the company's previous March guidance of $10.7 billion. CEO Hock Tan stated in the earnings press release that this quarter's growth was driven by the "combined strength of custom AI accelerators and AI networking demand."
Breaking down by segment, the Semiconductor Solutions business revenue was $15.009 billion, a 79% year-over-year increase, accounting for 68% of total revenue. AI semiconductor revenue within this segment rose to 72%. Non-AI semiconductor revenue was $4.2 billion, up 6% year-over-year, with a backlog exceeding $6 billion, indicating a cyclical recovery. The Infrastructure Software business (i.e., VMware) revenue was $7.178 billion, up 9% year-over-year, in line with the company's own guidance, but below the $7.32 billion analyst consensus from a StreetAccount survey, a shortfall of approximately $140 million.
Profitability performance was equally strong. Adjusted EBITDA reached $15.2 billion, accounting for 69% of revenue, setting a new historical record. Free cash flow was $10.26 billion, representing 46% of revenue. Cash balance at quarter-end was $19.63 billion, an increase of $5.4 billion from the previous quarter.
Q3 Revenue Guidance Exceeds Expectations, but AI Semiconductor Revenue "Misses by $12 Billion"
Broadcom's Q3 guidance projects total revenue of $29.4 billion, an 84% year-over-year increase, higher than the analyst consensus estimate of $28.54 billion. Semiconductor revenue is guided to be $20.5 billion, a 124% increase. However, the AI semiconductor revenue guidance within this is $16 billion, 7% lower than the $17.2 billion sell-side consensus estimate aggregated by institutions like LSEG. The gap is even larger compared to some more optimistic buy-side expectations.
More crucially, Hock Tan did not raise the fiscal year 2026 AI chip revenue guidance during the earnings call. According to CNBC, he reiterated during the call, "the company expects this momentum to continue into fiscal 2027 and maintains its guidance of AI semiconductor revenue exceeding $100 billion." Bernstein analyst Stacy Rasgon commented that it was the Q3 AI performance guidance that weighed on Broadcom's stock price.
Summing up the realized revenues for Q1 ($8.4B), Q2 ($10.8B), and the expectations for Q3 and Q4, Broadcom's projected total AI chip sales for this fiscal year are estimated to be around $56 billion, still showing a gap of about $1.6 billion compared to the analyst consensus estimate of $57.6 billion.
After-Hours Trading Plummets Over 13%, Options Market Had Already Priced in High Volatility
Broadcom's after-hours stock reaction was severe. After the earnings release at 4 PM EST on June 3rd, AVGO initially dropped about 5%. As guidance details were disclosed during the call, the decline continued to widen, with after-hours trading plunging over 15% at one point, eventually settling down 13.78%. Based on the pre-earnings closing price of approximately $479, this translates to a single-day market capitalization loss of over $270 billion.
Notably, the capital market was already preparing for significant volatility following Broadcom's earnings. Multiple media reports cited that prior to the release, the options market had priced in a single-day post-earnings volatility for Broadcom at around 7.8%, significantly higher than the historical average. This pricing reflected investor dilemma. Broadcom's stock price had rebounded over 60% from its March low entering the earnings season, with a nearly 40% gain year-to-date in 2026. Its valuation (approximately 90x P/E) is far above the semiconductor peer average of about 69x.
Precisely due to these valuation concerns, the market's implicit threshold for Broadcom's earnings was "across-the-board major beats." Any guidance falling short of this "blowout" performance could trigger profit-taking.
AI Networking Revenue Share to Decline from 40% to 30%
For the A-share optical module sector, a statement by Hock Tan during the call regarding the AI networking business might be more damaging than the overall AI guidance.
According to Yahoo Finance citing call content, Hock Tan confirmed that the AI networking business accounted for "close to 40%" of AI semiconductor revenue this quarter. However, he also stated that this proportion is expected to "normalize over time to a level closer to 30%, not stay at the 40% range."
This marks the first time Broadcom management has explicitly provided a path for the decline in the AI networking business share. AI networking (including Ethernet switch chips, optical transceiver module interconnect chips, and related segments) is precisely the downstream narrative underpinning the core revenue sources for leading A-share optical module companies like Zhongji Innolight (中际旭创), Sunsea AIoT (新易盛), and Tianfu Communication (天孚通信). The stock prices of these three companies have already surged significantly this year, with their combined market capitalization once exceeding that of Kweichow Moutai. Zhongji Innolight's forward P/E is about 66x, while Tianfu Communication's reaches 139x. Their valuation assumptions are built on expectations of sustained high-speed growth in AI networking.
Hock Tan's latest statement implies that even if AI computing power demand remains robust, the networking segment's share may peak first. If this signal is accepted by the buy-side, the previous valuation premiums for A-share optical module leaders will face direct scrutiny.
Spillover Effect: Marvell Drops After-Hours, Asian AI Chain Under Pressure Today
Broadcom's guidance effect has already begun to spill over. Marvell's after-hours stock price fell about 9%, narrowing to around 6% at the time of writing. Other companies related to the AI networking/connectivity theme, such as Astera Labs and Credo Technology, also faced pressure after-hours. Notably, on June 2nd, Marvell surged 32% in a single day after Nvidia CEO Jensen Huang called it "the next trillion-dollar company." On June 3rd, the stock continued to rise 3.73% during regular trading, but the after-hours pullback suggests concentrated profit-taking pressure on the "Nvidia premium" from the previous day.
For the Asian market, there are two key points to watch today. First, whether the A-share optical module leader trio "Yi Zhong Tian" (易中天, likely referring to the mentioned companies) can digest Hock Tan's statement about the declining network share. Second, whether South Korean HBM suppliers like SK Hynix and Samsung Electronics will be dragged down by an overall cooling of the AI narrative. Considering that Zhongji Innolight's single-day trading volume on June 2nd exceeded the total daily volume of half the sectors in the A-share market, the sector's emotional reaction might be amplified.
However, the earnings report itself did not negate the long-term prosperity of AI computing power. Hock Tan once again described AI chip demand as "insatiable" during the call and reaffirmed the goal of exceeding $100 billion in AI chip revenue for fiscal 2027. Institutions like UBS have previously entered a "buy-the-dip" logic following similar post-earnings declines for Broadcom back in December. Whether this round of correction marks a narrative inflection point or is merely a routine profit-taking event for high-valuation stocks requires observing subsequent earnings calls from leading companies and capital expenditure trends from hyperscale cloud providers to determine.
