Broadcom’s Record AI Haul Came With a Catch

The chip giant posted spectacular results fueled by artificial intelligence, so why did investors punish the stock?

If you glanced at Broadcom (AVGO)’s stock on Thursday, you saw a sea of red. A brutal 12.6% drop in a single session, all while the broader S&P 500 ticked up a placid 0.4%. You might have also seen the headlines about the company’s record-breaking quarter and figured something didn’t add up. You’d be right.

The Numbers That Weren’t Enough

Let’s be clear: the results were enormous. Second-quarter revenue hit a record $22.2 billion, up 48% from a year ago. The engine for this was, of course, AI. The company’s AI semiconductor revenue soared to a record $10.8 billion, a 143% jump year on year. The demand seems bottomless. CEO Hock Tan revealed that during the quarter, bookings for these AI chips were “over $30 billion against the $10.8 billion we shipped.” That’s the kind of backlog that usually sends a stock into orbit.

A Crack in the Armor

But Wall Street looked past the fireworks and found the fine print. The very custom chips driving this AI gold rush come with a trade-off: lower margins. On the earnings call, management was direct about the consequences. As these custom silicon sales “continue to accelerate, there will be pressure overall on margins,” CFO Kirsten Spears explained. The company even guided for consolidated gross margin to fall next quarter. Suddenly, the quality of that explosive growth looked a little different.

A Stumble in the Forecast?

Then came the full-year outlook. Broadcom raised its 2026 AI revenue forecast to a massive $56 billion. But a sharp analyst on the call noted that the math seemed to imply a potential sequential slowdown in the fourth quarter. For a stock that has been priced for flawless, non-stop acceleration, even the hint of a deceleration can feel like hitting the brakes. The market sold first and asked questions later.

Broadcom is still guiding for AI revenue to be “in excess of $100 billion” in fiscal 2027. But after a day like this, you have to wonder: is the market starting to worry that Broadcom is building a less profitable empire?

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