Broadcom posted the strongest quarter in its history on September 2, and the stock fell more than 5% after hours. That is the kind of disconnect worth examining carefully before assuming the market is right.
The numbers were genuinely impressive. AI semiconductor revenue hit $16.7 billion in fiscal Q3, up 221% year over year, clearing Broadcom’s own $16 billion target by $700 million. Total revenue of $29.6 billion rose 86% from a year earlier. Adjusted EPS of $3.32 beat the $3.24 consensus. Free cash flow of $13.7 billion equaled 46% of revenue, and operating margin expanded to 67.9%. These are not mediocre results dressed up with a flashy headline number. The business is genuinely accelerating.
The sell-off came from Q4 guidance: $34.8 billion in revenue, roughly $250 million short of what analysts had penciled in. That gap is about 0.7% of the guided figure. The market treated it like a warning sign.
Why Wall Street Still Cares
Broadcom is not a general semiconductor company. It is a key supplier of custom AI accelerators and infrastructure to the largest model developers in the world. During the Q3 call, CEO Hock Tan described an expanding roster that includes Google, Meta, and OpenAI, and he also discussed Anthropic as a major deployer of Google TPU capacity delivered through Broadcom. Jalapeño, OpenAI’s first Intelligence Processor co-developed with Broadcom, has been unveiled and is slated for initial deployment by the end of 2026. Tan also said Anthropic is expected to deploy another 5 gigawatts of TPU v8i in 2027.
Apple said it would increase spending with Broadcom under an agreement expected to exceed $30 billion, supporting expanded and modernized U.S. manufacturing facilities in Fort Collins, Colorado, tied to the production of more U.S.-made chips.
The long-range numbers are where the real story sits. Management said it has line of sight for AI semiconductor revenue to roughly double to about $115 billion in fiscal 2027, and to double again to about $230 billion in fiscal 2028. Tan also said the company is on target to exceed $30 in non-GAAP EPS in FY2028. At the post-earnings share price near $354, that puts the stock at roughly 12 times that FY2028 EPS target. That is not a stretched multiple for a company compounding earnings at that pace, assuming execution holds.
Going into that Q3 report, Broadcom shares were up only about 3% to 4% in 2026, meaningfully trailing the S&P 500’s roughly 11% to 13% gain. The stock was roughly 29% below its early June high near $495. Expectations, not the business, have become the primary risk.
What Could Go Wrong
Supply is the most immediate constraint. Management flagged bottlenecks across leading-edge silicon, substrates, and memory, and also pointed to constraints outside the chip supply chain, including land, power, and data center build-outs. Gross margin is also under pressure from the AI product mix, with Q4 non-GAAP operating margin guided to approximately 66%. If any of the large hyperscaler customers slows its spending cadence, Broadcom’s revenue concentration becomes a liability.
The FY2028 roadmap also demands nearly flawless execution over two years. Competition from custom silicon efforts at hyperscalers themselves, and from rivals like Marvell, is not sitting still.
The Bottom Line
Broadcom’s AI business is growing faster than almost any comparable business in technology at its scale. The Q4 guidance miss was real but small. The FY2028 earnings trajectory, if achieved, makes the current price look conservative. The next formal update arrives December 9 when Broadcom reports Q4 FY2026. Between now and then, every hyperscaler capex announcement is a live data point on whether Tan’s roadmap is tracking.
The sell-off created a re-entry window. Whether it holds depends on supply chain execution, not demand.
