Broadcom delivered one of its strongest quarterly reports on record Thursday, yet the market reaction was negative. Shares of Broadcom Inc. (AVGO) fell nearly 3% following the earnings release and are now down roughly 15% over the past month, trading around $358. That leaves the stock more than 25% below its all-time high, which was set in June.

The pullback illustrates how demanding expectations have become for AI-linked chip stocks: a quarter that set records on revenue, earnings, and free cash flow was still punished because forward guidance landed a hair below the most optimistic Wall Street models. Broadcom, whose business spans custom AI accelerators, networking chips, and infrastructure software (including VMware following its 2023 acquisition), has become one of the most closely watched proxies for hyperscaler and AI-lab spending on compute.

Record Q3 Results

Broadcom's fiscal third-quarter revenue came in at a record $29.59 billion, up 85% year over year and ahead of Wall Street's $29.4 billion estimate. Adjusted earnings per share reached $3.32, beating the $3.24 consensus, while free cash flow surged 95% to $13.7 billion.

AI semiconductor revenue was the standout performer, rising 221% to $16.7 billion. Custom XPUs grew 3.5 times year over year and now account for 73% of that AI revenue. The shift toward custom silicon reflects a broader industry trend in which large AI developers, rather than relying solely on merchant GPUs, commission purpose-built accelerators — a segment where Broadcom designs chips for customers such as Google, whose TPUs it has long produced, and, more recently, Anthropic and OpenAI.

For the fourth quarter, Broadcom guided revenue of approximately $34.8 billion, representing 93% year-over-year growth. However, some Wall Street forecasts had been sitting closer to $35 billion to $35.4 billion, and that small gap was enough to unsettle investors.

Long-Term AI Outlook Raised

Broadcom now expects AI semiconductor revenue of around $115 billion in fiscal 2027, an increase from its prior outlook of more than $100 billion. The company also introduced a fiscal 2028 target of $230 billion, implying another doubling from 2027.

Key customers Anthropic and OpenAI are driving much of that optimism. Anthropic signed a deal with Broadcom in April for multiple gigawatts of next-generation TPU capacity starting in 2027, while OpenAI is working with Broadcom on 10 gigawatts of custom AI accelerators through 2029. These multi-year, gigawatt-scale commitments are part of a wider wave of AI infrastructure buildouts, and they concentrate Broadcom's growth outlook in a small number of hyperscale and AI-lab buyers — a dependence bulls see as contracted visibility and bears see as concentration risk.

BMO Capital raised its price target to $575 from $455, citing Broadcom's six major AI customers and identifying Anthropic as one of the most aggressive in expanding computing capacity. Macquarie upgraded AVGO to Outperform with a $490 target, estimating that Anthropic alone could purchase more than $40 billion from Broadcom in fiscal 2028.

Analysts Remain Divided

Not all analysts are bullish. DA Davidson cut its price target to $350 from $400 while maintaining a Neutral rating, pointing to guidance concerns. RBC Capital held at $400 with a Sector Perform rating, flagging component supply and infrastructure readiness as potential risks. RBC also noted that Broadcom trades at roughly 18.5 times estimated 2027 earnings, a premium of more than 30% to Nvidia on a stock compensation-adjusted basis.

Elsewhere, Evercore ISI trimmed its target slightly to $578 from $582 while keeping an Outperform rating. TD Cowen cut its target to $475 from $500 but maintained a Buy rating. Morgan Stanley raised its target to $505 from $502, and Cantor Fitzgerald lifted its target to $600 from $525.

AVGO now trades at around 34 times forward earnings, slightly below its semiconductor industry peers but well above the S&P 500's 21 times multiple.

Truist Securities lowered its target to $520, citing a modest miss in software and an AI revenue outlook it viewed as slightly below consensus. KeyBanc kept its Overweight rating and $575 target, pointing to the raised fiscal 2027 AI revenue guidance.

The spread of targets — from $350 to $600 — captures the central debate: whether the multiyear AI backlog already announced justifies the premium valuation, or whether supply constraints, customer concentration, and high expectations leave little room for further upside. Investors tracking the story will be watching whether future updates confirm progress toward the fiscal 2027 and 2028 AI revenue targets.

Source: CoinCentral