Broadcom Inc. (AVGO) reported fiscal second-quarter 2026 results that beat earnings estimates but still managed to disappoint Wall Street. The stock fell about 15.7% in premarket trading Thursday, a reminder that when you're riding the AI wave, even great numbers might not be enough.

The company delivered record profitability, accelerating AI revenue, and a bullish third-quarter outlook. But investors were focused on what Broadcom didn't do: raise its long-term AI revenue target. With AI stocks priced for perfection, maintaining the forecast rather than lifting it triggered a wave of profit-taking across the semiconductor sector.

Earnings Snapshot

Broadcom reported second-quarter revenue of $22.19 billion, up 48% from a year earlier but slightly below analyst estimates of $22.27 billion. Adjusted earnings were $2.44 per share, topping Wall Street expectations of $2.40 per share.

The company said growth was driven by continued strength in artificial intelligence semiconductor demand. Operating margin hit a record 67.3%, expanding 200 basis points from a year earlier. Adjusted EBITDA totaled $15.2 billion, or 69% of revenue, exceeding company guidance. Free cash flow reached a record $10.3 billion, representing 46% of revenue. Broadcom ended the quarter with $19.6 billion in cash and cash equivalents.

AI Business Continues To Accelerate

CEO Hock Tan described demand for the company's AI chips and networking products as "insatiable." That's not just marketing speak — the numbers back it up. Broadcom booked more than $30 billion in AI semiconductor orders during the quarter, more than 2.7 times the AI revenue shipped during the quarter. That signals robust customer demand and growing visibility into future growth.

Semiconductor revenue rose 79% year over year to a record $15 billion. AI semiconductor revenue surged 143% to $10.8 billion and accounted for roughly 49% of total company revenue. Infrastructure software revenue increased 9% from a year earlier to $7.2 billion.

Broadcom also highlighted growing partnerships with major AI customers, including Alphabet Inc.'s Google (GOOG), Anthropic, OpenAI, and Meta Platforms Inc. (META). The company said OpenAI has committed to 1.3 gigawatts of compute capacity in 2027 as part of a broader 10-gigawatt agreement through 2029. Anthropic is expected to access more than 1 gigawatt of TPU-based compute in 2026 and an additional 5 gigawatts beginning in 2027. Meta is expected to deploy 3 gigawatts of MTIA XPU capacity through 2028, including an initial 1-gigawatt order already secured.

Broadcom Outlook

For the fiscal third quarter, Broadcom expects revenue of approximately $29.4 billion, above analyst estimates of $28.54 billion. That implies 84% year-over-year growth. The company expects adjusted EBITDA to remain at about 68% of revenue. Infrastructure software revenue is projected to reach $8.9 billion in the third quarter, representing 31% year-over-year growth.

Broadcom said AI semiconductor revenue is expected to double in the second half of fiscal 2026 and exceed $100 billion in 2027. For fiscal 2026, Broadcom expects AI semiconductor revenue to reach $56 billion, up about 180% from fiscal 2025. Management also expects continued expansion of AI infrastructure through its AI XPU platform, targeting more than 20 gigawatts of compute capacity by 2028 with partners including Apollo Global Management Inc. (APO) and Blackstone Inc. (BX).

So why did the stock drop? Because investors wanted more. With AI stocks trading at lofty valuations, maintaining the long-term target — even one as massive as $100 billion by 2027 — wasn't enough to justify the premium. It's a classic case of "buy the rumor, sell the news." But for anyone looking at the fundamentals, Broadcom's AI story remains one of the most compelling in tech.