Broadcom Drops 9% in a Month: Buy, Sell or Hold the AVGO Stock?

Earnings Impact 4
โดย Zacks Investment Research·Read original
Summary · why it matters

Broadcom shares dropped 9.1% in the past month, underperforming the broader Zacks Computer and Technology sector's return of 2%, as disappointing near-term guidance and a lack of a meaningful increase to the longer-term AI outlook triggered a sharp post-earnings selloff. The company raised its forecast for fiscal 2026 AI semiconductor revenues to $56 billion and reiterated expectations for more than $100 billion in AI revenues in fiscal 2027, but this failed to satisfy investors who had anticipated a larger upward revision given record quarterly AI bookings of $30 billion and accelerating demand from hyperscale customers. Broadcom also guided for gross margin to decline to 74% in the third quarter of fiscal 2026 from 77.1% in the fiscal second quarter due to a greater mix of lower-margin AI semiconductor revenues, raising concerns that profitability may not scale as quickly as revenues. AI semiconductor revenues reached a record $10.8 billion in the fiscal second quarter, a 143% year-over-year surge, and are expected to rise to $16 billion in the fiscal third quarter, indicating more than 200% year-over-year growth. Remaining Performance Obligations reached $164.6 billion, including commitments under new custom AI accelerator contracts, providing exceptional long-term revenue visibility, but the company's AI growth story is concentrated around approximately six large customers, including Google, OpenAI, Anthropic and Meta Platforms, which poses a risk if deployment schedules or spending moderate. Broadcom currently carries a Zacks Rank of 3, implying a Hold rating, as its premium valuation—trading at a forward 12-month price-to-sales ratio of 11.4 times versus the sector's 6.88 times—does not justify the elevated AI expectations and margin pressure.

Impact on stocks 6

Artificial Intelligence▼ · 5 stocks
Broadcom Inc
AVGO
▼ NegativeCapitalrelevance

Disappointing near-term guidance and lack of larger AI revenue forecast increase triggered post-earnings selloff; gross margin decline also raised profitability concerns.

Semiconductors▲ · 1 stocks

Theme Impact 3

Off-coverage companies 2

AnthropicPrivate± Mixed
relevance

OpenAIPrivate± Mixed
relevance

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