Will Broadcom Stock Recover After Its Guidance Disappointment, Or Should You Cut Your Losses?

Broadcom reported Q2 revenue of $22.19 billion, up 48% year over year and ahead of the $22.13 billion consensus, while adjusted EPS of $2.44 also beat estimates. AI semiconductor revenue surged 143% to $10.8 billion, but the stock fell more than 14% intraday as investors focused on third-quarter AI chip revenue guidance of about $16 billion versus a $17.2 billion whisper estimate and the company’s decision to reaffirm, not raise, its $100 billion AI revenue target for fiscal 2027. The selloff also pressured other chip stocks as sentiment toward AI growth expectations reset.

Analysis

The selloff looks more like a positioning reset than a fundamental air pocket, which matters because the entire AI capex complex had been leaning on ever-higher quarterly upside beats. When a supplier with high-quality gross margins and long-duration customer visibility stops accelerating guidance, the market re-rates the whole cohort: not because demand disappeared, but because the marginal buyer was paying for perpetual estimate revisions. That is a classic setup for a fast overshoot in semis tied to AI sentiment, especially in names with thinner earnings support than the leader.

Second-order, the bigger risk is not AVGO itself but the read-through to the AI supply chain over the next 1-2 quarters. If hyperscaler spend remains intact but is increasingly pre-committed through 2027, then the near-term trade shifts from “who gets the next raise” to “who can sustain margin and inventory discipline once the hype premium compresses.” That is modestly bearish for AMD, INTC, and MU in the near term because their own AI narratives depend more heavily on incremental optimism and multiple expansion than on visible locked-in cash flow.

The contrarian view is that management’s refusal to lift long-term targets may actually be bullish for durability: they are signaling scarcity is real, but not so scarce that they need to oversell it. If investors digest that 2027 is largely spoken for, the stock can stabilize once the forced sellers clear and the market realizes this was a guidance cadence issue, not a demand issue. The key catalyst for a rebound is not a new mega-deal headline, but a return to orderly trading and confirmation that the next quarter’s delivery profile remains unchanged; absent that, the group can drift for weeks as the market de-grosses AI exposure.

Key Decisions for Investors

• Buy AVGO on a 3-5 day post-earnings washout if it holds above the pre-report range; target a 10-15% retracement rebound over 4-8 weeks, with a stop on any evidence of actual order pull-forward fading.
• Short AMD vs long AVGO as a pair for 1-3 months; AMD is more exposed to multiple compression if AI enthusiasm cools, while AVGO has stronger cash conversion and customer lock-in. Favor a 1:1 dollar-neutral structure.
• Trim or hedge MU on rallies for the next 2-6 weeks; memory names tend to lag when AI capex sentiment shifts from acceleration to normalization, and the downside can persist even without a change in end demand.
• Sell short-dated NVDA puts or use NVDA as a hedge against broader AI beta de-rating over the next 2-4 weeks; the goal is to monetize a temporary sentiment reset rather than express a long-term negative view.
• If AVGO stabilizes and guidance digestion is complete, rotate into a basket of AI infrastructure beneficiaries with less event risk, but keep position sizes smaller until the market proves it will reward steady execution over incremental raises.