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BROADCOM EARNINGS: THE AI NUMBERS ARE HUGE, BUT THE MARKET WANTED EVEN MORE
$AVGO

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Broadcom has just delivered its fiscal 2026 third-quarter results, and the report perfectly shows how difficult it has become for AI stocks to simply “beat expectations.” At the current price of around $357.20, AVGO is trading after a sharp post-earnings reaction, with the stock closing around $357.16 on September 3 after falling 2.74%. The interesting part is that the underlying business numbers were exceptionally strong, yet investors initially focused on one number that was slightly below elevated expectations: the fourth-quarter revenue outlook.

THE GOOD NEWS: REVENUE AND EARNINGS BEAT

Broadcom generated $29.591 billion in Q3 revenue, representing an 86% year-over-year increase and exceeding the $29.362 billion market expectation. GAAP net income reached $13.088 billion, up an extraordinary 216% year over year, while non-GAAP EPS came in at $3.32, above the expected $3.23. The company also generated $13.7 billion in free cash flow, equal to 46% of revenue. These numbers show that Broadcom is not simply benefiting from the AI narrative—the underlying financial performance is expanding at an exceptional rate.

AI IS THE REAL ENGINE

The most important number in the entire report is still AI semiconductor revenue. Broadcom generated $16.7 billion from AI semiconductors in Q3, representing a massive 221% year-over-year increase and 54% sequential growth. The entire Semiconductor Solutions segment generated $20.839 billion, meaning AI semiconductor revenue represented roughly 80% of that segment. Even more important, Broadcom expects Q4 AI semiconductor revenue to accelerate to approximately $21.7 billion, which would represent 236% year-over-year growth.

THE LONG-TERM AI STORY JUST GOT BIGGER

CEO Hock Tan made the long-term outlook even more aggressive. Broadcom raised its fiscal 2026 AI revenue expectation from $56 billion to approximately $58 billion. But the bigger headline is the expected trajectory beyond 2026: approximately $115 billion in AI revenue in fiscal 2027, followed by around $230 billion in 2028. If that trajectory materializes, Broadcom would move into an entirely different scale of AI infrastructure business. The company is already supplying custom AI accelerators and networking solutions to major technology customers, making its role in the AI infrastructure buildout increasingly important.

WHY DID AVGO SELL OFF?

Here comes the classic Wall Street lesson: beating expectations is not always enough. Broadcom guided for approximately $34.8 billion of Q4 revenue, representing 93% year-over-year growth, but investors had positioned for an even higher number. The initial market reaction was therefore negative, with AVGO falling sharply after the report despite the enormous AI growth figures. Broadcom's official guidance also expects non-GAAP operating income to remain around 66% of projected revenue, showing that the company continues to maintain very strong profitability alongside the growth.

THE V-SHAPED REACTION MATTERS

What happened next was arguably more interesting than the initial decline. During the earnings call, the stock recovered as investors focused more closely on management's long-term AI outlook, supply position and accelerating custom-chip demand. This created a classic “expectations first, fundamentals second” reaction. The market initially punished the slightly softer near-term guidance, then reconsidered the much larger long-term opportunity. That tells me that investors are not questioning whether Broadcom is growing—they are questioning whether the growth is already fully reflected in the valuation.

THE CUSTOM-CHIP ADVANTAGE

Broadcom's AI opportunity is different from a pure GPU story. Its business includes custom AI accelerators and high-speed networking infrastructure, giving major technology companies another route for scaling AI computing. The company highlighted strong demand for custom accelerators, while management said supply has been secured to support the projected growth. This is particularly important because the AI infrastructure race increasingly depends not only on compute chips but also on networking and customized silicon capable of meeting specific workloads.

THE MARKET HAS A VALUATION PROBLEM

At around $357.20, AVGO is nowhere near the $495 52-week high, while the stock's recent weakness shows that investors are demanding increasingly strong results to justify its valuation. The September 3 session saw AVGO trade between roughly $342.33 and $359.40, with about 60 million shares changing hands. That range is important because it shows how aggressively the market repriced the stock after earnings.

WHAT I AM WATCHING NOW

Technically, $342–343 becomes an important immediate support area because it was the recent earnings-session low. The current $357 area is the decision zone. If buyers can reclaim and hold above the upper part of the recent range, the market could begin rebuilding momentum. The first important upside reference is around $370–372, where AVGO traded immediately before the earnings reaction. A stronger recovery through that region would suggest that investors are looking beyond the near-term guidance disappointment.

On the downside, failure to hold the $342 area would increase the risk of a deeper correction and could shift attention toward previous support zones. I would therefore avoid judging the stock from a single earnings candle. The more important signal is whether buyers can establish higher lows after the initial earnings volatility.

THE BULL CASE

The bullish thesis is straightforward: Q3 revenue grew 86%, AI semiconductor revenue exploded 221%, Q4 AI revenue is expected to reach $21.7 billion, and management is projecting AI revenue of approximately $115 billion in 2027 and $230 billion in 2028. If those projections are achieved, today's short-term guidance disappointment could eventually look insignificant compared with the scale of the AI opportunity.

THE RISK CASE

The biggest risk is not that Broadcom's AI business suddenly disappears. The bigger risk is expectation risk. When investors price in enormous growth, even excellent results can trigger selling if the next-quarter forecast does not exceed the market's unofficial expectations. Competition, customer concentration, supply constraints and the sustainability of AI infrastructure spending also remain important variables. The stock therefore needs continued earnings acceleration to justify its premium valuation.

Broadcom's latest report gives me a very clear three-stage picture: short-term pressure, medium-term AI strength and long-term potential. The Q4 guidance created the initial disappointment, but the underlying numbers remain extraordinary. At approximately $357.20, AVGO is now at an important technical and psychological decision point. For me, the most important levels are the $342–343 support zone and the $370–372 recovery zone. Holding support while rebuilding above $370 would improve the technical picture; losing the earnings low would suggest that the market needs more time to digest the valuation.

The bigger story remains AI. Broadcom has already delivered explosive semiconductor growth, raised its 2026 AI outlook to approximately $58 billion, and laid out an ambitious path toward $115 billion in 2027 and $230 billion in 2028. The market may be demanding perfection today, but the earnings report shows why Broadcom remains one of the most important names in the AI infrastructure race. @Gate_Square