Broadcom Slides as Soft Guidance Overshadows a 221% Jump in AI Sales

Broadcom delivered the kind of artificial-intelligence growth that has defined this chip cycle. Its stock fell anyway. Shares dropped roughly 6% in afternoon trading Thursday, to near $346, a day after the company reported fiscal third-quarter results that beat Wall Street’s earnings and revenue estimates. The sell-off traced to what came after the headline numbers: a fourth-quarter forecast that landed just below what analysts had modeled, and a margin outlook that pointed lower.

A beat, then a guide that fell short

For the quarter that ended August 2, Broadcom posted revenue of $29.6 billion, up 86% from a year earlier, and adjusted earnings of $3.32 a share. On a reported, or GAAP, basis, earnings were $2.68 a share. Both headline figures cleared the consensus estimates analysts had set. The engine was the one investors have watched all year. AI semiconductor revenue reached $16.7 billion, a 221% jump from the prior year and up 54% from the prior quarter, and made up 56% of the company’s total sales.

Then came the outlook. Broadcom guided fourth-quarter revenue to about $34.8 billion, which would be a 93% increase from a year ago but sat below the $35.05 billion analysts had penciled in. Chief Executive Hock Tan said demand for the company’s custom AI accelerators and networking chips remains very strong, and the company projected AI semiconductor revenue climbing to $21.7 billion in the current quarter.

Where the margin worry sits

The number that appeared to unsettle investors was profitability. Growth was never the question. Broadcom guided fourth-quarter gross margin toward 73%, down from 78% a year earlier. Custom AI chips built to a single customer’s specification carry more third-party content than the company’s traditional catalog products, and that mix weighs on margins even as the top line races ahead. For a stock priced for both fast growth and rich margins, a step down on the second measure was enough to send it lower.

A stock already off its highs

Thursday’s reaction landed on shares that had been sliding for weeks. As of Wednesday’s close, Broadcom was down 13% over the past month and about 8% over three months, and it sits well below its 52-week high of $495. Trading volume on Wednesday ran 1.8 times its 20-day average. The stock had already drifted toward the bottom of its three-month range, which ran from $354.68 to $481.57.

Peers held up. Nvidia edged higher and Advanced Micro Devices slipped in Thursday trading, a sign investors read Broadcom’s report as company-specific rather than a broad verdict on AI demand. The distinction matters for a name whose backlog now stretches years out.

What to watch

The next signposts are on the calendar. Broadcom’s fiscal fourth quarter closes in early November, and the report that follows will show whether the AI demand Tan described converts into the accelerating revenue management has guided to. Watch the gross-margin line most closely, since that is where Thursday’s doubt lives. The company has guided that figure to 73% for the current quarter, so the print that follows will test whether the custom-chip mix keeps pressing it lower. Investors will also weigh commentary from the wider semiconductor group for signs that the same custom-chip margin question is surfacing elsewhere as the AI build-out rolls on.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.