Shares of Broadcom (AVGO) continued their sharp pullback on Tuesday, extending a decline that has erased more than 20% from the stock's all-time high, even as the chipmaker reported record second-quarter results and unveiled a massive artificial intelligence infrastructure partnership with Apollo Global Management and Blackstone.
The sell-off was triggered last week after the company’s fiscal Q2 earnings, where AI semiconductor revenue guidance for Q3 came in at roughly $16 billion – up more than 200% year-over-year but merely in line with lofty Wall Street expectations. Investors had priced in a beat, and the in-line forecast was enough to spark profit-taking across AI-related stocks. Broadcom dropped from a peak of $495 to about $396.60, falling another 1.3% on Tuesday despite the announcement of the new “AI XPV Platform.”
Broadcom’s Q2 numbers were otherwise stellar. Total revenue hit a record $22.2 billion, up 48% from a year ago, with AI semiconductor revenue surging 143% to $10.8 billion. AI bookings topped $30 billion, and free cash flow reached a record $10.3 billion, equal to 46% of revenue. Operating margin climbed to a record 67.3%, and management guided for a similar ~67% in Q3. The company reiterated its target of more than $100 billion in AI revenue by fiscal 2027. However, gross margin compression – consolidated gross margin fell 230 basis points year-over-year to 77.1%, with a further drop to ~74% expected in Q3 – unnerved some. Management explained this as a mix shift: AI semiconductors carry lower gross margins than software, so as AI becomes a bigger slice of revenue, blended margins compress naturally.
On June 2, HSBC raised its price target on AVGO to $600 and maintained a Buy rating, citing ASIC revenue momentum and multi-year customer commitments with Google, Meta, Anthropic, and OpenAI. HSBC estimates ASIC revenue at $46 billion for fiscal 2026 and $100.2 billion for fiscal 2027, 23%-26% above consensus. The TipRanks consensus remains a Strong Buy with an average 12-month price target of $512.88, implying ~29% upside.
The new partnership, launched Tuesday, is the AI XPV Platform – a $35 billion initiative led by Apollo with Blackstone as anchor investors. It aims to support more than 20 gigawatts of AI computing capacity through 2028. The initial deployment backs Anthropic’s previously announced expansion of over one gigawatt of compute infrastructure, leasing from cloud provider Fluidstack, with capacity expected from mid-2026. Broadcom CEO Hock Tan called it “a historic inflection point” and said the platform enables customers “to realize their most ambitious AI visions with speed and certainty.” The deal underscores the insatiable demand for AI infrastructure and Broadcom’s expanding role beyond custom chips to helping clients secure physical data center capacity.
