Broadcom (AVGO) Stock Drops 3% Despite Strong Earnings: Should Investors Buy the Dip?

Key Takeaways

• AVGO declined close to 3% following earnings results and has dropped approximately 15% in 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 hovering around $35 billion
• The company elevated its fiscal 2027 AI chip revenue forecast to $115 billion, establishing a 2028 goal of $230 billion
• Wall Street opinions vary widely, with analyst price targets spanning from $350 (DA Davidson, Neutral) up to $600 (Cantor Fitzgerald, Overweight)

Despite delivering what ranks among its most impressive quarterly performances ever on Thursday, Broadcom failed to win over the market. Shares of AVGO tumbled close to 3% in the aftermath of the earnings announcement and have declined roughly 15% throughout the past month, currently changing hands around $358 per share. This positions the stock more than 25% beneath the all-time peak it achieved in June.

Broadcom Inc., AVGO

Third-quarter revenue totaled $29.59 billion, marking an 85% jump from the same period last year and surpassing the Street’s $29.4 billion projection. Adjusted EPS landed at $3.32, topping the consensus estimate of $3.24. Free cash flow experienced a 95% surge, climbing to $13.7 billion.

The headline performer was AI semiconductor sales, which exploded 221% to reach $16.7 billion. Custom XPU products expanded 3.5-fold year over year and now represent 73% of total AI-related revenue.

Looking ahead to Q4, Broadcom provided revenue guidance of approximately $34.8 billion, representing 93% year-over-year growth. The issue? Several Wall Street analysts had positioned their estimates between $35 billion and $35.4 billion. This modest shortfall proved sufficient to rattle investor confidence.

Company Elevates Multi-Year AI Revenue Projections

Broadcom has revised its fiscal 2027 AI semiconductor revenue expectation to approximately $115 billion, an increase from its previous forecast of over $100 billion. The company also unveiled a fiscal 2028 projection of $230 billion, suggesting another doubling from the 2027 figure.

Major clients including Anthropic and OpenAI are fueling much of this bullish outlook. Anthropic entered into an agreement with Broadcom in April for multiple gigawatts of next-generation TPU infrastructure beginning in 2027. OpenAI is collaborating with Broadcom on 10 gigawatts of custom AI processing chips extending through 2029.

BMO Capital elevated its price objective to $575 from $455, highlighting Broadcom’s six primary AI customers and emphasizing Anthropic as among the most aggressive in scaling computing infrastructure. Macquarie upgraded AVGO to Outperform with a $490 target, estimating that Anthropic alone might acquire over $40 billion worth of products from Broadcom during fiscal 2028.

Wall Street Opinions Show Clear Division

The bullish narrative doesn’t have universal support. DA Davidson reduced its price objective to $350 from $400 while maintaining a Neutral stance, emphasizing concerns surrounding the guidance figures. RBC Capital maintained its $400 target with a Sector Perform rating, identifying component availability and infrastructure preparedness as possible headwinds.

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

Evercore ISI made a slight reduction to its target, moving to $578 from $582, while preserving an Outperform rating. TD Cowen decreased its target to $475 from $500 yet retained a Buy recommendation. Morgan Stanley increased its target to $505 from $502. Cantor Fitzgerald boosted its objective to $600 from $525.

AVGO currently commands a valuation of around 34 times forward earnings, sitting marginally below its semiconductor sector counterparts but significantly above the S&P 500’s 21 times multiple.

Truist Securities decreased its target to $520, pointing to a modest shortfall in software performance and an AI revenue forecast it deemed slightly conservative relative to consensus. KeyBanc maintained its Overweight recommendation and $575 target, highlighting the upgraded fiscal 2027 AI revenue guidance.

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