Broadcom (AVGO) shares fell more than 4% on Thursday, with the stock (AVGO, -2.79%) sinking immediately after the release of its results before trimming some of the losses.

The AI chip and networking giant posted revenue growth amid booming AI demand, but its results were not enough to send the stock higher — a pattern common among AI-linked stocks, where valuations already reflect high expectations and even a beat can disappoint if guidance falls short.

"I can understand the selling pressure," StoneX financial equity research analyst Cody Acree told Yahoo Finance. Acree, who holds a Buy rating on the stock, said the chipmaker's fiscal Q3 revenue and earnings beat was "not enough to keep investors happy."

"The magnitude is not quite enough from a top and bottom line standpoint on the beat and raise when you have a company that is this levered to AI," Acree said.

Broadcom reported adjusted earnings per share of $3.32, beating Wall Street expectations of $3.23. Quarterly revenue grew 86% year over year to $29.6 billion, topping expectations of $29.45 billion. The steep growth rate partly reflects Broadcom's acquisition of software maker VMware, which closed in late 2023 and added a large infrastructure software business alongside its semiconductor operations.

The company said third-quarter AI semiconductor revenue of $16.7 billion grew 221% year over year and 54% quarter over quarter.

Looking ahead, Broadcom said it expects revenue of $34.8 billion for its current quarter, below the $35.05 billion consensus expected by analysts, according to Bloomberg data — a shortfall that weighed on the stock despite the Q3 beat.

Broadcom's revenue has surged as tech giants race to develop custom silicon and build out data centers. Unlike Nvidia, which sells general-purpose AI GPUs, Broadcom's AI chip business centers on designing custom accelerators for large cloud customers alongside its networking chips, a niche that has grown as hyperscalers seek alternatives tailored to their own workloads.

"Demand for our custom AI accelerators and networking continues to be very strong," CEO Hock Tan said in the company's earnings release.

The stock is up 6% year to date, compared with a 20% gain for peer Nvidia (NVDA).

"Broadcom is really just second only to Nvidia as far as its ecosystem across the data center," Acree said. "It's just a matter of when do you enter and when do you trade around a position."

Investors will be watching whether AI semiconductor revenue continues its sequential growth and whether future guidance meets the elevated bar set during the AI spending boom.

Ines Ferre is a senior business reporter for Yahoo Finance.

Source: Yahoo Finance