Broadcom’s Q3 guidance misses expectations by $1.2 billion, plunging over 13% after hours—has the AI narrative “cooled”?
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Broadcom’s Q3 guidance misses expectations by $1.2 billion, plunging over 13% after hours—has the AI narrative “cooled”?
For the A-share optical module sector, Chen Fuyang’s remarks on AI networking business during the conference call may be more damaging than the overall AI guidance.
Navigating Web3 tides with focused insightsAuthor: Ada, TechFlow
On June 3, after U.S. market close (Eastern Time), Broadcom released its second-quarter fiscal 2026 results, covering the period ended May 3, 2026. In absolute terms, this was a record-breaking quarterly report. Revenue reached $22.19 billion, up 48% year-on-year—the highest single-quarter growth rate since January 2017. Adjusted EPS stood at $2.44, exceeding the consensus analyst estimate of $2.40. However, market attention focused not on Q2 but on Broadcom’s AI chip revenue guidance for Q3: $16 billion, representing over 200% year-on-year growth—but approximately 7 percentage points below the sell-side consensus of $17.2 billion. This gap, coupled with slightly weaker-than-expected performance in the company’s software business, triggered a sharp market reaction.
Q2 Results Nearly Flawless; AI Semiconductor Revenue Grows for 13 Consecutive Quarters
According to Broadcom’s official disclosure, Q2 AI semiconductor revenue totaled $10.8 billion, up 143% year-on-year—exceeding the company’s prior March guidance of $10.7 billion. In its earnings statement, CEO Hock Tan attributed the quarter’s growth to “dual drivers: demand for custom AI accelerators and AI networking solutions.”
By business segment, semiconductor solutions revenue amounted to $15.009 billion, up 79% year-on-year and accounting for 68% of total revenue; AI semiconductor revenue now represents 72% of this segment, while non-AI semiconductor revenue stood at $4.2 billion, up 6% year-on-year, with an order backlog exceeding $6 billion—indicating cyclical recovery. Infrastructure software revenue (i.e., VMware) totaled $7.178 billion, up 9% year-on-year—consistent with the company’s own guidance but below the StreetAccount survey consensus of $7.32 billion, reflecting a shortfall of roughly $140 million.
Profitability metrics were equally robust. Adjusted EBITDA reached $15.2 billion, or 69% of revenue—a new record high; free cash flow totaled $10.26 billion, or 46% of revenue; and ending cash balance stood at $19.63 billion, up $5.4 billion sequentially.
Q3 Guidance Exceeds Revenue Expectations, But AI Semiconductor Revenue Falls $1.2 Billion Short
Broadcom’s Q3 revenue guidance stands at $29.4 billion, up 84% year-on-year—above the consensus analyst expectation of $28.54 billion. Semiconductor revenue guidance is set at $20.5 billion, up 124% year-on-year. However, AI semiconductor revenue guidance is $16 billion—7% below the $17.2 billion sell-side consensus compiled by LSEG and other institutions—and even wider versus more optimistic buy-side estimates.
More critically, Hock Tan did not raise the company’s full-year fiscal 2026 AI chip revenue guidance during the earnings call. According to CNBC, he reiterated during the call: “We expect this momentum to continue into fiscal 2027 and maintain our guidance for AI semiconductor revenue exceeding $100 billion.” Bernstein analyst Stacy Rasgon commented that it was the Q3 AI revenue guidance that weighed on Broadcom’s stock price.
Summing up realized Q1 ($8.4 billion) and Q2 ($10.8 billion) revenue, plus Q3 and Q4 expectations, Broadcom’s full-year AI chip sales are projected to land near $56 billion—still about $1.6 billion short of the $57.6 billion consensus analyst forecast.
After-Hours Decline Exceeds 13%; Options Market Had Already Priced in Volatility
Broadcom’s after-hours stock reaction was severe. Following the earnings release at 4 p.m. Eastern Time on June 3, AVGO initially dropped roughly 5%; as further guidance details emerged during the earnings call, losses widened further, plunging over 15% at one point before closing down 13.78%. Based on the pre-earnings closing price of approximately $479, the company lost over $270 billion in market capitalization in a single day.
Notably, financial markets had already been preparing for significant post-earnings volatility. As cited by multiple media outlets, options markets had priced in an expected single-day move of roughly 7.8% following the earnings release—well above historical averages. This pricing reflects investor ambivalence: Broadcom’s stock had rebounded over 60% from its March lows and gained nearly 40% year-to-date through fiscal 2026, trading at a valuation of roughly 90x P/E—significantly higher than the semiconductor industry average of ~69x.
It is precisely due to these valuation concerns that the market’s implicit threshold for Broadcom’s earnings was “comprehensive, massive outperformance.” Any guidance falling short of “blow-out” results could trigger profit-taking.
AI Networking Revenue Share to Fall from 40% to ~30%
For A-share optical module companies, a specific comment by Hock Tan on AI networking during the earnings call may prove more impactful than the overall AI guidance.
According to Yahoo Finance’s reporting of the call, Tan confirmed that AI networking accounted for “nearly 40%” of AI semiconductor revenue this quarter—but added that this share is expected to “normalize over time to around 30%, rather than remain near 40%.”
This marks the first time Broadcom’s management has explicitly outlined a downward trajectory for AI networking’s revenue contribution. AI networking—including Ethernet switch chips, optical transceiver interconnect chips, and related components—represents the core downstream narrative underpinning the primary revenue sources of leading A-share optical module companies: Innolight, Eoptolink, and TFC Communications. All three have seen substantial share price gains this year; their combined market capitalization briefly surpassed that of Kweichow Moutai. Innolight trades at a forward P/E of ~66x, while TFC Communications trades at 139x—valuations predicated on expectations of sustained high growth in AI networking.
Tan’s latest remarks imply that even if AI compute demand remains robust, the networking segment’s share may peak first. If buy-side investors accept this signal, the valuation premiums previously assigned to A-share optical module leaders will face immediate pressure.
Spillover Effect: Marvell Drops After Hours; Asia’s AI Supply Chain Under Pressure Today
Broadcom’s guidance is already spilling over. Marvell fell roughly 9% after hours, narrowing to ~6% by press time. Other AI networking/connectivity-focused peers—including Astera Labs and Credo Technology—also faced pressure after hours. Notably, Marvell surged 32% on June 2 after NVIDIA CEO Jensen Huang called it “the next trillion-dollar company”; its stock rose another 3.73% on June 3—but the subsequent after-hours pullback signals concentrated realization of the “NVIDIA premium” built up the previous day.
For Asian markets, today’s key focal points are two-fold: First, whether the A-share optical module “Yi-Zhong-Tian” trio (Innolight, Eoptolink, TFC) can absorb Tan’s comments on the declining networking share; second, whether Korean HBM suppliers—including SK Hynix and Samsung Electronics—are pressured by broader cooling of the AI narrative. Given that Innolight alone accounted for over half of the A-share optical module sector’s total daily trading volume on June 2, sector sentiment may be amplified.
Nonetheless, the earnings report itself does not undermine the long-term strength of AI compute demand. During the call, Tan again described AI chip demand as “insatiable” and reaffirmed the $100 billion AI chip revenue target for fiscal 2027. Following similar declines after Broadcom’s earnings last December, UBS and other institutions adopted a “buy-the-dip” strategy. Whether this correction marks a narrative inflection point—or merely a routine profit-taking event for a high-valuation name—will depend on upcoming earnings calls from industry leaders and capital expenditure trends among hyperscale cloud providers.
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