Broadcom Posts Blowout Quarter, but Gross Margin Guidance Triggers $291 Billion Rout
05.06.2026 - 17:09:33 | boerse-global.de
The numbers looked stellar — yet Wall Street sent Broadcom shares into a tailspin. The chipmaker delivered fiscal second-quarter results that beat every headline forecast, but investors fixated on a softer-than-expected margin outlook and a tempered AI revenue projection for the current period. The reaction was brutal: roughly $291 billion in market capitalization evaporated in a single trading session.
For the quarter ended May 3, 2026, Broadcom generated $22.2 billion in revenue — a 48% year-over-year surge that edged past the analyst consensus. Adjusted earnings per share came in at $2.44, also above expectations. The star performer was the AI chip business, where revenue soared 143% to $10.8 billion, fueled by long-term supply agreements with hyperscalers such as Google, Meta and OpenAI.
Free cash flow hit $10.3 billion, representing a robust 46% of total revenue. Yet none of that was enough to shield the stock from the selloff that followed the company's quarterly guidance.
Guidance Raises Eyebrows
Broadcom forecast third-quarter total revenue of roughly $29.4 billion — well ahead of the consensus range of $28.3 billion to $28.6 billion. The AI chip segment alone is expected to contribute $16 billion. On the surface, that looks impressive. But the market had been pricing in a more ambitious figure of $17.2 billion, according to optimistic analyst models. The shortfall, coupled with a projected gross margin of around 74% — four percentage points below the consensus of 76.8% — spooked investors.
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The company attributed the margin compression to product mix and the ramp-up of custom chips for key clients like Google. Still, the disappointment was enough to trigger one of the largest single-day value destructions in US corporate history.
The stock, which had touched a 52-week high of €429.60 on the day of the earnings release, plunged 12% in New York trading before closing near €355.15. That left the shares roughly seven percent lower on the week and about 18% off the peak.
Analysts Step In With Upgrades
Several sell-side firms used the pullback to raise their price targets, arguing the fundamental thesis remains intact. Morningstar lifted its target to $650, citing Broadcom's long-term AI potential. JPMorgan set a $580 target, while KeyBanc went to $575. Macquarie struck a more cautious note, maintaining a "Neutral" rating with a $437 target and flagging the risk that Google could diversify its chip suppliers.
CEO Hock Tan, unmoved by the volatility, reaffirmed the company's belief that AI-related revenue will surpass $100 billion by fiscal 2027. Current AI bookings stand at over $30 billion — three times the quarterly delivery rate — providing a visible pipeline that underpins that forecast.
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Capital Returns Continue
Broadcom also announced a quarterly dividend of $0.65 per share, payable June 30, 2026, and authorized a $10 billion share repurchase program valid through the end of next year. The buyback gives management a lever to support the stock as it recovers from the post-earnings shellacking.
Despite the rout, Broadcom shares remain roughly 19% higher year-to-date. The question now is whether the market's punishment was an overreaction or a sobering recognition that even the hottest AI play must eventually live up to ever-rising expectations.
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