Broadcom Inc. (AVGO) shares took a hit in Thursday's premarket, dropping more than 3% as investors zeroed in on the company's softer-than-expected revenue guidance for the current quarter. The broader market seemed unfazed, with Nasdaq futures barely moving and S&P 500 futures ticking up 0.08%.
The chipmaker reported fiscal third-quarter revenue of $29.59 billion after Wednesday's close, edging past the $29.36 billion analysts had penciled in. Adjusted earnings of $3.32 per share also came in ahead of the $3.24 estimate. But the forward-looking numbers told a different story: Broadcom guided for fourth-quarter revenue of about $34.8 billion, falling short of the $35.03 billion consensus.
That gap between a solid quarter and a slightly disappointing forecast is what spooked the market, even though the underlying business appears to be humming along.
Bernstein Calls Broadcom's Quarter Strong
Broadcom entered the report with sky-high expectations tied to artificial intelligence demand. The stock's weak technical setup added to the pressure, with recent rebound attempts failing to hold as shares remain below key moving averages.
But Bernstein analyst Stacy Rasgon, speaking on CNBC Wednesday, pushed back against the negative narrative. "The quarter was actually very, very good," he said.
Rasgon noted that Broadcom delivered an overall beat, with semiconductor revenue coming in slightly above expectations. Infrastructure software revenue missed estimates, but he characterized the shortfall as minor. Gross margin hit 75%, about a percentage point above Wall Street's forecast, and the company posted strong AI revenue.
Investors Await 2027 AI Outlook
Rasgon described Broadcom's fourth-quarter guidance as "in-lineish," though he pointed out that the operating margin outlook was about 50 basis points below expectations, possibly due to higher memory prices.
He emphasized that the earnings call would carry more weight than the initial report. Investors are eager for an update on Broadcom's AI semiconductor revenue outlook for 2027. The company previously projected more than $100 billion in AI semiconductor revenue, and Rasgon said investors widely expect Broadcom to raise that forecast. He also wants management to provide more insight into 2028 demand.
Broadcom has been in discussions with Apollo Global Management Inc. (APO) and Blackstone Inc. (BX) about financing arrangements that could fund significant data center capacity through 2028, Rasgon added.
Custom Chip Competition Remains a Concern
Investors have also been questioning whether Broadcom could lose custom chip business to rivals like MediaTek Inc. and other semiconductor companies.
Rasgon acknowledged the competitive risk but argued that the AI market could be large enough to support multiple suppliers. Broadcom, MediaTek, NVIDIA Corp. (NVDA), Advanced Micro Devices Inc. (AMD), and Qualcomm Inc. (QCOM) have all pointed to strong demand, he noted.
He also observed that Broadcom's valuation has fallen alongside other chip stocks. Still, management's long-term AI outlook could be the deciding factor in whether investors buy into the stock's next leg of growth.
Technical Analysis
From a chart perspective, Broadcom is trading 7.7% below its 20-day simple moving average, 7.6% below its 50-day SMA, 10.8% below its 100-day SMA, and 3.9% below its 200-day SMA. This setup suggests that rallies could face selling pressure, especially with several moving averages clustering in the mid-to-high $300 range.
The MACD remains below its signal line, and the histogram is negative, pointing to weakening momentum. The longer-term picture is mixed: Broadcom formed a golden cross in April when its 50-day SMA moved above its 200-day SMA, but the stock has since fallen below the 200-day level.
Resistance stands near $407.50, while support sits around the psychologically important $350 level.
Analyst Outlook
Wall Street remains largely bullish on Broadcom, with a Buy consensus rating and an average price target of $507.91. Recent analyst actions include RBC Capital maintaining a Sector Perform rating and a $400 price target on Aug. 26, BMO Capital initiating coverage with an Outperform rating and a $455 target on Aug. 21, and Erste Group downgrading the stock to Hold on July 7.
Top ETF Exposure
Broadcom holds significant weight in several major tech ETFs, which means fund flows can influence its stock price. It has a 9.94% weighting in the Invesco PHLX Semiconductor ETF (SOXQ), an 8.49% stake in the iShares Expanded Tech Sector ETF (IGM), and an 8.12% share of the iShares Semiconductor ETF (SOXX).
These large weights mean that inflows or outflows from these funds can have a noticeable impact on Broadcom's shares.
As of Thursday's premarket, Broadcom shares were down 2.79% at $356.99, according to market data.
