Broadcom Shares Dip as Strong AI Growth Is Tempered by Cautious Q4 Outlook

Broadcom Inc. (AVGO) reported blockbuster third-quarter earnings driven by soaring demand for its artificial intelligence chips, but its shares declined after the company issued a fourth-quarter revenue forecast that narrowly missed Wall Street's ambitious estimates.

Record AI Sales Underscore Dominance

Broadcom's results for the third fiscal quarter of 2026 confirmed its central role in the AI infrastructure boom. The company posted significant year-over-year growth across key metrics:

• Total Revenue: $29.59 billion, an increase of 86%.
• AI Semiconductor Revenue: $16.7 billion, a jump of 221%.
• Non-GAAP EPS: $3.32, up 96%.

Revenue from AI-related semiconductors now constitutes 56% of the company's total sales, cementing its transition from an AI beneficiary to a core AI hardware provider. Management also noted strong performance in its Infrastructure Software segment, where revenue, including contributions from VMware, reached $8.8 billion, up 29%.

Guidance Misses High Expectations

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Despite the strong quarterly performance, the stock fell in response to the company's forward-looking guidance. Broadcom projected fourth-quarter revenue of approximately $34.8 billion, which fell just short of the consensus analyst estimate of around $35.05 billion.

Investors also focused on a sequential decline in gross margin, which fell 210 basis points to 75%. The company attributed the margin pressure to a richer mix of AI hardware sales and costs associated with supply chain constraints. This indicates that while demand is exceptionally strong, profitability is being impacted by the costs of meeting it.

Supply, Not Demand, Remains the Limiter

Company management made it clear that growth is constrained by supply, not a lack of customer demand. Key bottlenecks include substrate capacity and laser components. Demand remains robust, with Broadcom guiding for Q4 AI semiconductor revenue to reach $21.7 billion, a 236% year-over-year increase.

Broadcom highlighted a diverse customer base for its custom silicon and networking products, including Google, OpenAI, Anthropic, and Meta. Looking ahead, investors will be watching for progress on capacity expansion, such as a new Singapore substrate facility expected to come online in fiscal 2027, as a key catalyst for converting the massive demand backlog into recognized revenue.