Key Takeaways:
Broadcom Inc. shares tumbled 12.6% on June 4 after the chipmaker's AI revenue guidance disappointed investors, wiping out about $280 billion in market value in the session.
The selloff came despite Broadcom beating earnings estimates for its fiscal second quarter. The company reported adjusted earnings of $2.44 a share on revenue of $22.19 billion, compared with analyst expectations of $2.40 and $22.27 billion, respectively. Revenue rose 48% from a year earlier, while net income jumped 88% to $9.31 billion.
"The share price pullback represents an enhanced buying opportunity," Citi analysts wrote in a note, maintaining their buy rating and $500 price target on the stock.
Bank of America analyst Vivek Arya also reiterated a buy rating and raised his price target to $530 from $450, implying about 26.5% upside from Broadcom's June 4 close of $418.91. Arya lifted his earnings estimates for fiscal 2026, 2027 and 2028 to $11.60, $17.93 and $23.56 a share, respectively, from $10.94, $17.05 and $23.21.
The post-earnings decline ranks among the largest single-day market-cap losses for megacap technology stocks, trailing only Nvidia Corp., Microsoft Corp. and Apple Inc. in recent history, according to Yahoo Finance data.
Broadcom's AI semiconductor revenue more than doubled to $10.8 billion in the quarter, and the company forecast about $16 billion for the current period. Chief Executive Hock Tan described demand for AI infrastructure as "insatiable," with quarterly bookings exceeding $30 billion — nearly three times the amount of AI products shipped.
Still, investors focused on the company's decision to reiterate rather than raise its long-term AI forecast of more than $100 billion in revenue by fiscal 2027. Broadcom also guided for gross margins to decline to about 74% in the current quarter from roughly 77%, reflecting a growing mix of lower-margin custom AI chips.
Citi noted that the lower margin outlook is offset by stable operating margins and that investors should watch demand from Broadcom's largest customer, Google, which accounts for an estimated 35% to 40% of sales.
Broadcom shares remain up about 21% year to date, outperforming the S&P 500's roughly 11% gain. The stock has surged about sevenfold since the end of 2022 as spending on AI infrastructure accelerated.
The selloff puts Broadcom at a valuation that analysts say is attractive for long-term investors. BofA's Arya projects the company can achieve earnings per share of $30 or more by calendar 2030, representing a compound annual growth rate of about 40% from 2025 levels. Investors will watch the company's fiscal third-quarter results for signs of margin stabilization and further AI booking momentum.
This article is for informational purposes only and does not constitute investment advice.
