Broadcom shares plunged more than 12% in early premarket trading Thursday as investors reacted negatively to the AI chipmaker's decision to leave its fiscal 2027 AI revenue target unchanged despite delivering an upbeat second-quarter performance. The selloff occurred even as the company reported second-quarter sales and third-quarter guidance above market expectations. Analysts rushed to raise price targets following the earnings release, with Morningstar increasing its target to $650 from $550 and Jefferies raising its target to $550 from $500, both firms arguing that Broadcom's $100 billion AI chip sales forecast for fiscal 2027 appears deliberately conservative.
Broadcom Shares Drop Over 12% in Premarket Trading
Broadcom shares fell more than 12% in early premarket trading Thursday. Investors reacted negatively to the company's decision to maintain its fiscal 2027 AI revenue target at $100 billion without raising the forecast. The decline erased more than $300 billion in market capitalization in one session, according to trader commentary on Stocktwits. As of Wednesday's close, Broadcom shares were up close to 40% year-to-date, outperforming the Nasdaq's 16% gain over the same period.
Analysts Raise Price Targets Despite Stock Decline
Morningstar raised its price target on Broadcom stock to $650 from $550, implying an expected 36% rise. "Shares fell... as investors hoped for higher guidance in 2027 and beyond. We believe Broadcom is guiding conservatively, and see the $100 billion fiscal 2027 target as a sandbag," Morningstar analysts said in their investor report. The research firm said management expects to ship capacity for 10 gigawatts of compute in 2027 and believes the company will earn well above $10 billion per gigawatt. Morningstar models $200 billion in AI chip revenue in fiscal 2028.
Jefferies raised its price target on the stock to $550 from $500 while maintaining a 'Buy' rating. The research firm expects Broadcom's operating margins to improve as AI revenue accelerates. Chip sales to Anthropic and OpenAI appear poised for a ramp-up in 2027 and 2028, making for a relatively softer 2026 with still nearly 200% growth, Morningstar said.
In April, Broadcom announced a long-term agreement to develop and supply future generations of Google's Tensor Processing Units (TPUs) and provide networking components for Google's next-generation AI racks. The company also expanded its multi-year partnership with Meta to co-develop future generations of Meta's MTIA AI accelerators. Broadcom has a similar deal with OpenAI to supply 10 gigawatts of custom AI accelerators, announced last October.
Retail Sentiment Shifts to Extremely Bullish
On Stocktwits, retail sentiment for AVGO was 'extremely bearish' (99/100) on Thursday morning. By later in the day, sentiment climbed several points to nearly the highest possible level in the 'extremely bullish' category (99/100). Traders dismissed concerns and expected a rebound soon.
"$AVGO More than 300 billions are gone in market cap in one session. This is unreal. Recovery will be powerful and it could happen by Friday," a trader wrote on Stocktwits.
Another wrote: "Did a deep dive on AVGO earnings. Over reaction imo. OpenAI, Anthropic, plus Apollo Blackstone contract. with this gap down trading at less than 0.7 PEG. THIS IS BUY THE DIP opportunity. As future XPU incorporates HBM/GPU margin will go up. Apollo contract only beginning."
Broadcom Reports Second-Quarter Revenue and Profit Growth
Broadcom's revenue climbed 48% to $22.19 billion, beating analysts' estimate of $22.13 billion. Net profit rose to $9.31 billion from $4.97 billion a year ago. On an adjusted basis, profit of $2.44 per share was higher than the $2.40 target.
For the third quarter, Broadcom forecasts overall revenue of $29.4 billion, compared with analysts' projection of $28.25 billion. "We expect this momentum to continue into fiscal year 2027 and reiterate our AI semiconductor revenue guidance to be in excess of $100 billion," CEO Hock Tan said.
FAQ
What caused Broadcom stock to drop more than 12% on Thursday?
Broadcom shares plunged more than 12% in early premarket trading Thursday as investors reacted negatively to the company's decision to leave its fiscal 2027 AI revenue target unchanged at $100 billion despite delivering an upbeat second-quarter performance.
What price targets did analysts set for Broadcom after earnings?
Morningstar raised its price target on Broadcom to $650 from $550, implying an expected 36% rise. Jefferies raised its price target to $550 from $500 while maintaining a 'Buy' rating. Both firms argued that Broadcom's $100 billion fiscal 2027 AI chip sales forecast appears deliberately conservative.
How did Broadcom's second-quarter financial results compare to expectations?
Broadcom reported second-quarter revenue of $22.19 billion, up 48% and beating analysts' estimate of $22.13 billion. Adjusted earnings per share of $2.44 exceeded the $2.40 target. For the third quarter, Broadcom forecasts revenue of $29.4 billion, above analysts' projection of $28.25 billion.
