Broadcom (AVGO) Stock Drops 3% Despite Strong Earnings: A Buying Opportunity?

Key Takeaways

• AVGO declined approximately 3% following its earnings announcement and has retreated roughly 15% during the last month, currently hovering near $358
• Third-quarter revenue reached an all-time high of $29.59 billion, representing an 85% year-over-year increase, while AI chip revenue skyrocketed 221% to $16.7 billion
• Fourth-quarter revenue projection of $34.8 billion fell marginally short of Street expectations near $35 billion
• The company elevated its fiscal 2027 AI semiconductor revenue forecast to $115 billion, introducing a 2028 projection of $230 billion
• Wall Street remains divided, with analyst price objectives spanning from $350 (DA Davidson, Neutral) to $600 (Cantor Fitzgerald, Overweight)

Broadcom delivered what many consider among its most impressive quarterly performances on Thursday, yet investors responded with disappointment. Shares of AVGO retreated nearly 3% in the aftermath of the earnings release and have now declined approximately 15% throughout the previous month, settling around $358 per share. This positions the stock more than 25% beneath its peak reached in June.

Broadcom Inc., AVGO

Third-quarter revenue totaled $29.59 billion, marking an 85% year-over-year expansion and surpassing the Street’s $29.4 billion projection. Adjusted earnings per share registered at $3.32, topping the $3.24 consensus estimate. Free cash flow jumped 95% to reach $13.7 billion.

The AI semiconductor segment emerged as the clear highlight, climbing 221% to achieve $16.7 billion. Custom XPU products expanded 3.5 times compared to the previous year and now represent 73% of total AI revenue.

Looking ahead to Q4, Broadcom projected revenue of approximately $34.8 billion, representing 93% year-over-year growth. The issue? Several Wall Street analysts had positioned their forecasts nearer to $35 billion to $35.4 billion. This modest shortfall proved sufficient to trigger investor concern.

Extended AI Forecast Receives Significant Upgrade

Broadcom has revised its AI semiconductor revenue expectation to approximately $115 billion for fiscal 2027, an increase from its previous outlook exceeding $100 billion. The company also unveiled a fiscal 2028 objective of $230 billion, suggesting another doubling from 2027 levels.

Major clients including Anthropic and OpenAI are fueling much of this optimistic outlook. Anthropic executed an agreement with Broadcom in April for multiple gigawatts of next-generation TPU infrastructure beginning in 2027. OpenAI is partnering with Broadcom on 10 gigawatts of customized AI accelerators extending through 2029.

BMO Capital elevated its price objective to $575 from $455, highlighting Broadcom’s six principal AI customers and identifying Anthropic as among the most aggressive in expanding computational infrastructure. Macquarie upgraded AVGO to Outperform with a $490 target, estimating that Anthropic alone could acquire over $40 billion from Broadcom during fiscal 2028.

Wall Street Opinions Diverge

Not all analysts embrace the bullish narrative. DA Davidson reduced its price objective to $350 from $400 while maintaining a Neutral stance, citing guidance-related concerns. RBC Capital maintained its $400 target with a Sector Perform rating, highlighting component availability and infrastructure preparedness as potential headwinds.

RBC additionally observed that Broadcom currently trades at approximately 18.5 times projected 2027 earnings, representing a premium exceeding 30% compared to Nvidia when adjusting for stock-based compensation.

Evercore ISI modestly reduced its target to $578 from $582 while retaining an Outperform rating. TD Cowen lowered its objective to $475 from $500 but preserved its Buy recommendation. Morgan Stanley increased its target to $505 from $502. Cantor Fitzgerald boosted its projection to $600 from $525.

AVGO currently commands around 34 times forward earnings, positioning it marginally below semiconductor industry counterparts but substantially above the S&P 500’s 21 times multiple.

Truist Securities decreased its target to $520, pointing to a modest software segment miss and an AI revenue outlook it characterized as slightly beneath consensus. KeyBanc preserved its Overweight recommendation and $575 objective, emphasizing the increased fiscal 2027 AI revenue guidance.