"Exceeding expectations" falls short of expectations, Wall Street revalues Broadcom

On September 2 local time in the United States, Broadcom announced its financial results for the third fiscal quarter of fiscal year 2026, which ended on August 2, 2026.

According to the financial report, Broadcom posted total net revenue of 29.591 billion US dollars in the quarter, up 86% year over year, exceeding the general market analysts' expected range of 29.36 billion to 29.45 billion US dollars.

Calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the net profit reached 13.088 billion US dollars (equivalent to diluted earnings per share of 2.68 US dollars), representing a year-over-year increase of 216%. On a Non-GAAP basis, the net profit hit 16.372 billion US dollars, with adjusted earnings per share (EPS) of 3.32 US dollars, also outperforming the market consensus expectation of 3.24 US dollars.

Key Financial Data of Broadcom's Third Fiscal Quarter

Broadcom's board of directors also announced the approval of a cash dividend of 0.65 US dollars per share on the company's common stock for the third fiscal quarter, which will be paid on September 30, 2026 to shareholders of record as of the close of business on September 21.

However, after the release of this financial report with multiple indicators hitting all-time highs and both revenue and earnings exceeding expectations, Broadcom's after-hours stock price once fell by 5.6%.

As of press time, Broadcom's stock price stood at 361.90 US dollars, down 1.45% from its closing price of 367.24 US dollars for the day.

01 AI Semiconductor Revenue Surges 221% Year Over Year

Broadcom's Semiconductor Solutions Business Posts Significant Revenue Growth

Despite the pressure on its after-hours stock price, from the perspective of segmented businesses, the fundamentals of Broadcom's business in the core AI hardware sector remain strong.

In the third fiscal quarter, Broadcom's Semiconductor Solutions business generated revenue of 20.839 billion US dollars, accounting for 70% of total revenue, up 127% year over year. Among this, the revenue of its AI semiconductor business reached 16.7 billion US dollars, up 221% year over year and 54% quarter over quarter.

Hock Tan, President and Chief Executive Officer of Broadcom, pointed out: "Market demand for our custom AI accelerators and networking products continues to maintain a very strong momentum." For the fourth fiscal quarter, Broadcom expects AI semiconductor revenue to further accelerate to 21.7 billion US dollars, with a year-over-year increase of 236%.

In terms of specific key customer cooperation, Broadcom is deeply bound to the world's leading tech giants and top AI laboratories through multiple product lines:

In its cooperation with OpenAI and Apple, Broadcom continues to advance the shipment of the jointly developed "Jalapeno" custom chips, and has launched in-depth discussions on the R&D planning of the second-generation and third-generation chips. At the same time, Apple has also clearly stated that it will continue to increase capital expenditure on Broadcom's U.S.-based chip manufacturing business.

In terms of ecological collaboration with Google and Anthropic, Broadcom is accelerating the delivery of TPUs based on Google's Ironwood architecture, and simultaneously promoting the shipment of Google's TPU 8i chips. Hock Tan revealed on the conference call that the value of processors Broadcom delivers to Google each year will reach tens of billions of US dollars in the coming years. As a key part of Google's computing power ecosystem, Anthropic plans to deploy TPU 8i chips with a total scale of 5 gigawatts by 2027.

In addition, the custom MTIA accelerator chip developed for Meta has entered the mass production and delivery stage, which is mainly used to support and boost the AI inference and recommendation algorithm workloads across Meta's huge business system.

02 Balance Sheet Provides Solid Backing

The financial report shows that as of the end of the third fiscal quarter, Broadcom's cash and cash equivalents have increased significantly from 19.611 billion US dollars at the end of the previous fiscal quarter to 24.001 billion US dollars.

In terms of cash flow, Broadcom's operating cash flow in the quarter reached 14.197 billion US dollars. After deducting 532 million US dollars in capital expenditure, the free cash flow hit 13.665 billion US dollars, accounting for 46% of the total revenue in the period.

Amie Thuener, Chief Financial Officer of Broadcom, said that the company achieved record revenue, operating profit and free cash flow in the third fiscal quarter, and expects to maintain a 66% Non-GAAP operating margin in the fourth fiscal quarter. In response to the capital pressure faced by top AI laboratories during the computing power expansion process, Broadcom has proposed an innovative business support model to help strategic customers fill the funding gap for large-scale upfront infrastructure investment.

Analysts believe that Broadcom's huge cash flow and strong balance sheet not only guarantee stable shareholder dividends, but also provide financial advantages for it to assist core customers in undertaking early large-scale computing power infrastructure investment. Although the market fluctuates in the short term due to the fourth fiscal quarter guidance being slightly lower than expected, Broadcom's deep moat in the AI computing power and data center networking sectors is still hard to replace.

03 Slight Outperformance Fails to Justify Extremely High Valuation

As the world's second-largest data center computing power ecosystem giant after NVIDIA, Broadcom carries extremely high expectations from the capital market. However, even with repeatedly record-breaking financial data, the decline in its after-hours stock price still exposes Wall Street's pickiness and hidden concerns under the extremely high AI premium.

First, the outperformance margin is smaller than expected, making it difficult to support the high valuation premium.

Cody Acree, an equity research analyst at StoneX, pointed out that for a giant like Broadcom that is highly anchored in the AI boom, the quarterly revenue only exceeded expectations by about 1.2%, and this slight "small outperformance" is obviously not enough to excite the market.

Broadcom's stock price has only risen by a cumulative of about 6% so far in 2026, far lagging behind its peer competitor NVIDIA's 20% increase. Against the backdrop of market sentiment being extremely boosted by AI, the slightly outperforming performance has been regarded by investors as "disguised underperformance".

Secondly, the revenue guidance for the fourth fiscal quarter failed to meet Wall Street's highest expectations. Broadcom gave a revenue outlook of about 34.8 billion US dollars (up 93% year over year) for the fourth fiscal quarter of fiscal 2026. Although the growth rate is still rapid, it is still slightly lower than the average analyst expectation of 35.03 billion to 35.05 billion US dollars compiled by Bloomberg and LSEG.

At the same time, the 8.752 billion US dollars revenue of the infrastructure software business in the same quarter was also slightly lower than analysts' expectation of 8.82 billion US dollars, further intensifying the market's wait-and-see sentiment.

In addition, intensified competition in the custom chip market and supply chain bottlenecks are also the key concerns of the capital market.

In the ASIC custom chip track, competitor Marvell reached a multi-year cooperation agreement with Google in August this year, which is expected to bring significant revenue growth by fiscal 2033, directly challenging Broadcom's exclusive position among core customers.

On the supply side, Broadcom itself is also facing the constraint of tight production capacity. The company had to reach a multi-year strategic cooperation agreement worth over 200 billion US dollars with Samsung Electronics in July this year, in order to diversify its manufacturing bases and ensure production capacity supply.

This article is from the WeChat Official Account "Tencent Tech", written by the author Worth Paying Attention To, and published with authorization from 36Kr.