Shares of semiconductor and software giant Broadcom (NASDAQ: AVGO) saw a notable decline in market value recently, plummeting approximately 13% on Thursday and an additional 8% on Friday. This sharp downturn occurred despite the company reporting record fiscal second-quarter results, which concluded on May 3, 2026, and providing an even more optimistic forecast for its artificial intelligence (AI) chip sales in the current quarter. The sell-off erased hundreds of billions of dollars in market capitalization, pushing Broadcom’s valuation back below the $2 trillion mark, raising questions among investors about the underlying dynamics at play.
Record AI Growth Fuels Semiconductor Segment
Broadcom’s fiscal second-quarter performance showcased robust growth, particularly within its AI semiconductor division. The company reported AI semiconductor revenue hitting a record $10.8 billion, representing a staggering 143% year-over-year increase. This figure marked a significant acceleration from the prior quarter’s AI revenue growth of 106%, which stood at $8.4 billion. Management’s guidance for the fiscal third quarter projected further acceleration, anticipating AI revenue to reach roughly $16 billion, indicating growth exceeding 200%.
The strength was not limited to AI chips alone. Broadcom’s total revenue for the quarter surged 48% year over year to a record $22.2 billion. This was primarily driven by the semiconductor solutions segment, which saw its revenue climb 79% to $15 billion. Non-GAAP (adjusted) earnings per share also reflected this positive momentum, growing 54%, while the company maintained profit margins near record levels. CEO Hock Tan underscored the demand, stating during the earnings call, “Demand for XPUs and networking is simply insatiable,” referring to the custom AI chips and networking gear that now constitute the bulk of the business.
A Softer Spot and Market Disappointment
Despite the impressive semiconductor performance, the quarter was not entirely without a softer spot. Broadcom’s other key segment, infrastructure software, which includes the enterprise software business anchored by its 2023 acquisition of VMware, grew by a more modest 9% year over year, reaching $7.2 billion. This single-digit growth rate stood in contrast to the 79% expansion seen in the chip segment, marking one of the few areas where the company’s recent momentum appeared to temper.
However, analysts suggest that the infrastructure software’s performance alone does not fully account for the substantial 21% cumulative stock decline over two trading days. The more probable explanation lies in the stock’s preceding trajectory. Broadcom shares had closed at an all-time high on Tuesday, June 2, just a day before the earnings report. This powerful climb had, according to market observers, priced in years of rapid growth, leaving little room for anything less than an extraordinary blowout.
Valuation and Expectations: The Core of the Correction
The market’s reaction appears to be less a judgment on the company’s operational performance and more a recalibration of investor expectations against a rich valuation. Broadcom’s management reaffirmed its target of more than $100 billion in AI semiconductor revenue for fiscal 2027, an enormous figure by any measure. Yet, for investors who might have anticipated an upward revision based on the surging order book, holding the target steady could have been perceived as a slight letdown.
Furthermore, the stock’s valuation heading into the report was substantial. As of the time of writing, Broadcom traded at a price-to-earnings (P/E) ratio of approximately 64. Such a rich multiple inherently relies on the expectation of continued rapid AI growth for many years. In such a scenario, any perceived disappointment, however minor, can be amplified, leading to significant price adjustments.
Risks and the Path Forward
Investors also weigh inherent risks associated with Broadcom’s AI revenue stream. The company’s AI revenue is heavily reliant on a handful of very large customers, meaning that the delay or loss of even a single program could materially impact future results. Additionally, while there are no immediate signs of a slowdown, the broader wave of AI infrastructure spending could eventually moderate.
In conclusion, the post-earnings decline in Broadcom’s stock appears to be less about a stumble in the business and more about a reset of market expectations. The shares had, by many accounts, run ahead of even a fast-growing company’s impressive results. For long-term investors who maintain conviction in the multi-year build-out of AI infrastructure, this pullback could present an opportunity to initiate a small position. Nevertheless, given the stock’s still steep valuation, a cautious approach remains advisable.
