AVGO Stock Falls From Record Highs Amid Slowing AI, Despite Q1 Beat – Buy Now?

Quick overview

Broadcom’s shares fell in after-hours trading as investors responded to the company’s first-quarter earnings, which showed good figures but warned of slowing AI chip demand.

Broadcom Slides After Earnings Despite Record Results

Broadcom Inc. (NASDAQ: AVGO) experienced a sharp reversal in sentiment following its Q1 earnings release, with shares falling around 5% in after-hours trading to $246.31. This drop followed a modest 0.44% decline during regular U.S. trading on June 5, where the stock closed at $259.93. Earlier in the week, AVGO had reached a new high of $265.43, underscoring the magnitude of the turn in sentiment.

The after-hours dip comes after a spectacular recovery in Broadcom’s stock, which has surged nearly 100% since its lows in early April—more than recovering from a steep correction earlier this year that saw shares plunge over 40% from their peak. That rally had been fueled by investor enthusiasm around Broadcom’s central role in AI infrastructure and chipmaking, particularly amid rising demand from hyperscalers and cloud service providers.

However, this enthusiasm appears to be softening. Investor concerns are now mounting over signs that Broadcom’s AI-driven growth may be decelerating. The company’s AI chip revenue, while still growing, is showing signs of moderation compared to earlier quarters when explosive gains were the norm. As a result, market sentiment has cooled, and the stock is expected to open lower tomorrow, likely forming a bearish gap.

AVGO Stock Chart Daily – Trades Below $250

Despite these concerns, Broadcom’s financial performance remains strong. The company continues to report double-digit growth across its major metrics, with Q1 revenue and earnings both exceeding Wall Street expectations. Margins have remained healthy, and Broadcom maintains a bullish outlook for Q3, highlighting resilience in its enterprise and semiconductor infrastructure businesses. The company’s integration of VMware and growth in cloud services are also contributing positively to the top line.

Yet, as the initial wave of AI hype stabilizes, investors are becoming more cautious. The focus now shifts to the sustainability of AI revenue growth and whether the current pace of expansion can be maintained. Broadcom’s steady EBITDA margins and forward guidance offer reassurance, but the market’s reaction suggests that expectations were running even higher.

Q1 2025 Financial Highlights

Revenue
• Reported Q2 revenue reached $15 billion, up 20% YoY, exceeding analyst forecasts of $14.96 billion.
• This marks a slowdown from 25% YoY growth reported in Q1, indicating a slight deceleration in momentum.

Net Profit
• Adjusted non-GAAP net income for the quarter stood at $7.787 billion, reflecting a 44% increase YoY.
• Growth is slightly below the 48.9% increase posted in the prior quarter, but still robust.

EBITDA Performance
• Q2 adjusted EBITDA totaled $10.001 billion, up 34.6% YoY, accounting for 66.7% of total revenue.
• This is a modest pullback from 40.9% YoY growth and 68% margin in Q1, signaling a marginal compression in profitability margins.

Earnings Per Share (EPS)
• Adjusted Q2 EPS came in at $1.58, representing a 43.6% YoY increase and beating consensus expectations of $1.56.
• Prior quarter EPS growth was slightly higher at 45.5%.

Forward-Looking Guidance (Q2 2025)

Revenue Outlook
• Q3 revenue is projected at $15.8 billion, signaling 21% YoY growth, marginally ahead of the street’s forecast of $15.72 billion.

EBITDA Margin Forecast
• Management expects Q3 EBITDA to represent approximately 66% of revenue, maintaining operating efficiency within a stable range.

Business Segment Breakdown

Semiconductor Solutions Division
• This unit, which includes data center and network products, generated $8.41 billion in revenue, up 16.7% YoY.
• Performance outpaced analyst projections of $8.39 billion, underscoring solid infrastructure demand.

AI Chip Revenue
• Revenue from AI chip-related products grew 46% YoY, showing substantial but decelerating growth from the prior quarter’s 77%.
• The drop in growth rate suggests a cooling trend in AI chip sales after a previous surge.

Broadcom Q3 AI Chip Outlook – Key Pointers

Revenue Guidance for Q3

• Broadcom expects total Q3 revenue to grow by 21% YoY, slightly above Q2 growth and ahead of Wall Street estimates.
• The guidance signals momentum continuation as enterprise and AI-related demand remain strong.

AI Semiconductor Segment Forecast

• CEO Hock Tan stated that AI chip revenue is projected to accelerate to $5.1 billion in Q3.
• This would mark the tenth consecutive quarter of growth in Broadcom’s AI semiconductor division.

Analyst Expectations vs Company Guidance

• Consensus analyst forecast for Q3 AI chip revenue: $4.79 billion.
• Some analysts have higher projections, estimating up to $5.29 billion, which would exceed Broadcom’s own guidance by 3.7% or more.

CEO Commentary

Hock Tan, Broadcom’s CEO, emphasized that the company achieved a record quarterly revenue high, driven largely by:
• Strong contributions from semiconductor solutions,
• And accelerating integration and monetization of VMware’s cloud computing business, acquired in 2023.

Conclusion: Broadcom’s Q1 results reaffirmed its status as a top-tier semiconductor and infrastructure provider, but a cooling in AI chip momentum sparked a notable post-earnings selloff. While fundamentals remain solid, investors are now scrutinizing whether the pace of AI-related growth can keep up with the sky-high expectations that helped fuel AVGO’s massive rebound this spring.

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Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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