AI semiconductor sales hit $10.8 billion in the quarter, up 143% year over year, but shares fell on an underwhelming AI chip forecast
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Broadcom $AVGO reported second-quarter revenue of $22.19 billion on Wednesday, up 48% from a year earlier, as demand for its artificial intelligence chips accelerated. But the stock slid after results and guidance fell short of some investor expectations.
After-hours trading Wednesday saw Broadcom shares drop 12%. Adjusted earnings per share came in at $2.44. Wall Street had been looking for adjusted earnings of $2.40 per share and revenue of $22.13 billion, according to Barron's.
AI semiconductor revenue was the standout figure. The company said AI chip sales reached $10.8 billion in the quarter, a 143% increase from the same period a year earlier. Looking to the current quarter, Broadcom put its AI semiconductor revenue target at $16 billion — a figure that came in below analyst expectations of $17.2 billion, Yahoo Finance noted. That forecast would still represent more than 200% growth compared with the same period a year ago.
"Q2 semiconductor revenue from AI of $10.8 billion grew 143% year-over-year, above our forecast, driven by increasing demand for custom AI accelerators and AI networking," Broadcom CEO Hock Tan said in a statement.
Broadcom also left its full-year AI chip revenue target unchanged. "We expect this momentum to continue into fiscal year 2027 and reiterate our AI semiconductor revenue guidance to be in excess of $100 billion," Tan said on an earnings call, according to CNBC.
Two disclosures during the earnings call pushed the selloff deeper, Barron's reported: Tan acknowledged that Google $GOOGL would likely draw on multiple chip suppliers, and he warned that surging AI semiconductor sales were weighing on the company's overall gross margins. "Semiconductor margins remain very stable and very solid. It's the mix, particularly the mix between software and non-AI to the very, very rapidly growing AI semiconductor that is just diluting gross margin," Tan said on the call.
On a total-company basis, third-quarter revenue guidance came in at roughly $29.4 billion, implying year-over-year growth of about 84%. That figure topped the $28.25 billion analysts had projected.
The semiconductor solutions segment generated $15 billion in quarterly revenue, while the infrastructure software division brought in $7.18 billion, a 9% annual gain. On a GAAP basis, net income climbed 88% to $9.31 billion, or $1.91 per diluted share.
Broadcom designs custom AI accelerator chips for a set of major technology customers. Tan said on the earnings call that the company has six core custom chip customers, including Google, Meta $META, Anthropic, and OpenAI. Broadcom recently expanded a partnership with Meta on custom AI chips through 2029, and Anthropic signed a compute agreement with Google and Broadcom covering approximately 3.5 gigawatts of capacity expected to come online starting in 2027.
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