Broadcom’s AI guidance “not explosive enough” triggers sell-off, but Wall Street says it’s an overreaction: The real boom will come after 2027.

Broadcom’s AI guidance “not explosive enough” triggers sell-off, but Wall Street says it’s an overreaction: The real boom will come after 2027.

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Broadcom (AVGO) delivered an impressive quarterly report, with the explosive momentum in its AI business continuing into the next quarter’s guidance—but CEO Hock Tan remains cautious on long-term targets, refusing to raise guidance for AI revenue in fiscal 2027. The market responded by selling off the stock. However, Wall Street analysts were quick to comment: this is a misjudgment, as Broadcom's true explosive growth will only fully materialize after 2027.

Latest financial data shows Broadcom's AI revenue for fiscal Q2 2026 (ended April 2026) was $10.8 billion, up 145% year-on-year and 28% quarter-on-quarter; total revenue was $22.187 billion, up 48% year-on-year, both exceeding market expectations. The third-quarter guidance is equally strong: total revenue of $29.4 billion (up 33% quarter-on-quarter, up 84% year-on-year), AI revenue of $16 billion (up 48% quarter-on-quarter, up 210% year-on-year).

However, Citi analyst Atif Malik pointed out that the $16 billion AI revenue guidance was below his own expectation of $17.5 billion and below the market consensus of $16.3 billion; meanwhile, Hock Tan only reiterated the existing target of “over $100 billion” in AI revenue for fiscal 2027 without raising the number, which became the direct source of the market's disappointment.

A detail overlooked by the market may explain the situation: Hock Tan revealed that Broadcom’s visibility into AI demand has now extended from "through 2027" three months ago, to "through 2028" this quarter; bookings for Q2 exceeded $30 billion, AI revenue is expected to double in the second half of fiscal 2026, with the full year projected to reach around $56 billion, and "far exceeding" the $100 billion target entering fiscal 2027.

Deutsche Bank analyst Ross Seymore raised Broadcom's target price sharply from $430 to $515 after the earnings report, maintained a Buy rating, and clearly defined the pullback as a “buying opportunity.” He believes that the lack of an upward revision to long-term guidance is "mainly due to management’s conservative stance, not factors like lost market share or data center construction delays," and predicts Broadcom's AI revenue will reach $125 billion in fiscal 2027 (about 25% above company guidance), and further leap to about $190 billion in fiscal 2028. Deutsche Bank also raised its forecasts for 2027 calendar year revenue and EPS by about 15% each.

Earnings Beat Across the Board—the Only "Miss" is the Long-Term Guidance

All core measures for Q2 beat expectations to various degrees: total revenue of $22.187 billion, higher than the market consensus of $22.053 billion; AI revenue of $10.8 billion, up 145% year-on-year; non-GAAP EPS of $2.44, above the consensus of $2.39; adjusted gross margin of 77.1%, slightly above the expected 76.9%. In breakdown, networking chip revenue was $4.304 billion (up 144% year-on-year), compute offload/accelerator revenue was $6.496 billion (up 146% year-on-year).

The Q3 guidance is also universally strong: total revenue of $29.4 billion, above previous market consensus of $28.3 billion; infrastructure software segment is guided up 24% quarter-on-quarter, mainly benefitting from VMware’s server CPU demand driven by per-core pricing, with the company expecting this strength to persist beyond Q3.

But the core of the market’s disappointment is only one thing: Hock Tan, though exhibiting "higher confidence" for the 2027 target, did not provide higher concrete numbers. For investors hoping for a "blowout guidance," his silence was interpreted as a risk signal.

Analysts: Conservatism, Not Weakened Fundamentals

Deutsche Bank's Ross Seymore offered a completely different interpretation.

In his view, the extension of visibility from "through 2027" to "through 2028" in just three months is itself an important positive signal; Q2’s bookings exceeding $30 billion and the doubling path of AI revenue in the latter half of fiscal 2026 both point to sustained strong demand. Hock Tan's "over $100 billion" target has always been conservative—Deutsche Bank's forecast is already at $125 billion.

Ross Seymore believes Broadcom’s leading position in XPU (custom accelerator chips) and network switches will continue translating into considerable revenue and EPS growth. In his report, he wrote that as AI income grows significantly faster than operating expense expansion, operating margin will remain stable or even slightly improve overall.

Citi’s Atif Malik is relatively cautious but also maintains a Buy rating and $500 target price. He pointed out that the Q3 AI guidance is below Citi’s expectation, and the 67% Q3 operating margin guidance is also below Citi’s expectation (68.6%) and below the market consensus (67.5%). Key points to watch in the following earnings call include supply chain updates, gross margin impacts, and VMware renewal. Citi sets the valuation at the low end of the recent 20–40x range to reflect intensifying competition risks.

The Real Boom: “Blowout” Numbers Only Come After 2027

According to Deutsche Bank's forecast, Broadcom's AI revenue growth path is: about $56 billion for fiscal 2026, about $125 billion for fiscal 2027, about $190 billion for fiscal 2028.

Company-wide, Deutsche Bank forecasts total revenue of about $105.8 billion for fiscal 2026 (up 66% year-on-year), about $179.8 billion for fiscal 2027 (up 70%), about $246.8 billion for fiscal 2028 (up 37%); predicted non-GAAP EPS of about $18.30 for fiscal 2027, about $21.80 for fiscal 2028.

In the earnings report, Hock Tan described demand for AI-driven XPUs and networking as "almost impossible to satisfy," with major customers’ custom chip demand visibility now extended to 2028. Thus, the analysts’ logic is clear: the market is disappointed by the old "100 billion" target, but they fail to see the leap from $125 billion to $190 billion—this is the real main storyline for Broadcom’s AI investment.

Gross Margin Under Short-Term Pressure, Operating Margin Expected to Stay Robust

The main negative signal from this report comes from gross margin outlook.

The Q3 adjusted gross margin is guided down about 3 percentage points quarter-on-quarter, mainly because the proportion of AI revenue in total income keeps rising (Q3 AI revenue expected to account for about 78% of semiconductor income). Deutsche Bank suggests this structural dilution effect from AI will persist.

Still, Ross Seymore believes the rapid growth in AI income will far outpace operating expense expansion, enough to offset the drag on operating margin from declines in gross margin, and expects operating margin to remain basically stable or slightly improve.

Another detail worth noting is capital return: the company paid about $3 billion in dividends this quarter, but only repurchased about $600 million in stock—significantly below the normal level—and repaid about $1.25 billion in debt. Deutsche Bank judges that the company may be actively accumulating cash to meet growing capital expenditure needs driven by rapid AI demand expansion.

Two Major Institutions Maintain Buy Ratings, Pullback Seen as Buying Opportunity

Deutsche Bank raised its target price from $430 to $515 (about 20% higher), corresponding to about 23x 2027 calendar non-GAAP EPS, and maintains a Buy rating. Ross Seymore clearly says the long-term investment thesis is unchanged, and this pullback is a rare buying window.

Citi maintains its $500 target price (corresponding to about 20x 2028 fiscal EPS) and Buy rating. Atif Malik notes that Citi estimates about 35% to 40% of Broadcom’s revenue comes from Google, its largest customer, and the risk of client concentration deserves ongoing attention.

 

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