Broadcom Inc. (NASDAQ: AVGO) shares fell 6% this week following the company’s fiscal second-quarter 2025 earnings release, as investors digested a mix of record-setting results and cautious forward guidance.
The drop reflects short-term selling pressure despite Broadcom’s continued leadership in the AI semiconductor and infrastructure software markets.
For the quarter ended May 4, Broadcom reported revenue of $15 billion, a 20% year-over-year increase, and a net income of $4.97 billion, up 134% from the same period last year. Adjusted earnings per share came in at $1.58, narrowly beating analyst expectations.
The company’s AI semiconductor revenue surged 46% to $4.4 billion, driven by robust demand for AI networking solutions and custom accelerators, particularly from hyperscale cloud customers. Infrastructure software revenue also impressed, rising 25% to $6.6 billion, with more than 87% of Broadcom’s largest customers migrating to VMware Cloud Foundation subscriptions.
Despite these strong results, the stock declined as investors focused on Broadcom’s third-quarter guidance, which, while solid, suggested only modest sequential growth. The company projects Q3 revenue of $15.8 billion, up 21% year-over-year, but gross margins are expected to dip due to a higher mix of lower-margin custom AI accelerators (XPUs). This shift, while fueling top-line growth, is anticipated to pressure profitability in the near term.
Analysts remain optimistic about Broadcom’s long-term prospects. The company’s innovative product lineup—including the next-generation Tomahawk 6 switch and a growing VMware software business—positions it at the forefront of AI infrastructure expansion. Leading customers such as Alphabet and Meta Platforms continue to drive demand for Broadcom’s advanced networking chips and custom silicon. Wall Street consensus remains bullish, with multiple analysts raising price targets and reaffirming “buy” ratings following the earnings release.
Broadcom’s fundamentals remain strong, supported by a healthy balance sheet, $6.4 billion in quarterly free cash flow, and ongoing share repurchases and dividends.
While the stock faces short-term volatility, the company’s leadership in AI and networking technology, along with its expanding software footprint, suggests a compelling long-term growth story for investors willing to look beyond temporary market fluctuations.
