Broadcom delivered a solid quarter and overall guidance above market expectations, but AI revenue guidance was slightly below expectations

Overview

This is a Goldman Sachs earnings commentary on Broadcom Inc. (AVGO). The report believes the company delivered a solid quarter, with revenue, gross margin, and operating margin broadly in line with or slightly better than market expectations, while the AI Semiconductor business continued to post strong growth. However, although overall 3Q revenue guidance was clearly above market expectations, AI Semiconductor revenue guidance was below both Goldman Sachs and market expectations, which may pressure the stock in the short term given elevated expectations.

Core views

The core view is that AVGO's fundamentals remain attractive, and Goldman Sachs maintains its Buy rating and $500 target price; the main near-term debate centers on AI revenue guidance coming in slightly below the market, whether FY26/27 AI revenue growth targets will be updated, progress with existing and new XPU customers, and the future margin trajectory. The report expects commentary on the earnings call to be key to the market's assessment of the subsequent trend.

Analysis framework

The report uses a quick earnings-review framework, comparing the company's reported quarterly revenue, margins, EPS, and segment revenue item by item against Goldman Sachs forecasts and market consensus expectations, and further evaluating the differences in 3Q guidance versus expectations. On valuation, Goldman Sachs derives its 12-month target price using a P/E multiple based on normalized EPS estimates.

Methodology notes

• Relative-to-expectations comparisonQuarterly earnings and guidance variance analysis

  Deviation of actual results and company guidance versus Goldman Sachs forecasts and market consensus expectations

  The report assesses quarter quality and guidance strength by comparing revenue, gross margin, operating margin, operating EPS, AI Semiconductor revenue, Semiconductor Solutions revenue, and Infrastructure Software revenue.

• Valuation methodTarget-price multiple valuation

  30x normalized EPS

  Goldman Sachs' 12-month target price of $500 is based on 30x normalized EPS of $17.00, used to gauge AVGO's valuation level relative to earnings power and growth expectations.

• Factor frameworkGS Factor Profile

  Growth, Financial Returns, Multiple, and Integrated percentiles

  The Goldman Sachs Factor Profile compares a stock relative to the covered market and industry peers across growth, financial returns, valuation multiples, and integrated metrics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Broadcom Inc. (AVGO)

  Stock covered in the report; Goldman Sachs assigns a Buy rating and $500 target price

  Strengths

  Solid quarterly revenue, gross margin and operating margin slightly better than the market, AI Semiconductor revenue up 143% year over year, and 3Q total revenue guidance clearly above the market.

  Weaknesses

  3Q AI Semiconductor revenue guidance is below Goldman Sachs and market expectations, operating EPS is below Goldman Sachs' forecast, and market expectations heading into earnings were high.

  Comparison

  Quarterly revenue of $22.2bn was in line with Goldman Sachs and slightly above the market; 3Q revenue guidance of $29.4bn was above the market's $28.2bn; AI revenue guidance of $16.0bn was below the market's $16.4bn.

  Risks

  A slowdown in AI infrastructure spending, share loss in custom compute, continued inventory digestion in non-AI businesses, and intensifying VMware competition.

• AI Semiconductor

  AVGO's key growth driver and near-term point of debate

  Strengths

  Revenue rose 143% year over year to $10.8bn, showing AI-related demand remains strong.

  Weaknesses

  3Q revenue guidance of $16.0bn is below Goldman Sachs' $17.4bn and the market's $16.4bn.

  Comparison

  Actual quarterly revenue was slightly above market expectations, but next-quarter guidance is below market expectations.

  Risks

  If AI infrastructure spending slows, it could pressure revenue growth and valuation premium.

• Infrastructure Software / VMware

  Software business and margin-related asset

  Strengths

  Infrastructure Software revenue was $7.2bn, in line with Goldman Sachs and market expectations.

  Weaknesses

  The report lists intensifying VMware competition as a downside risk.

  Comparison

  This business performed steadily this quarter, but the report provides no evidence of upside growth beyond expectations.

  Risks

  Intensifying VMware competition could affect software business growth and margins.

Key data

• Quarterly revenue$22.2bnIn line with Goldman Sachs' forecast of $22.2bn and slightly above the market expectation of $22.1bn.
• Gross margin77.1%Slightly above Goldman Sachs' 77.0% and the market's 76.8%.
• Operating margin67.3%Close to Goldman Sachs' 67.4% and above the market's 66.9%.
• Operating EPS$2.44Below Goldman Sachs' $2.50, but above the market's $2.39.
• AI Semiconductor revenue$10.8bn, +143% YoYClose to Goldman Sachs' $10.9bn and slightly above the market's $10.7bn.
• Semiconductor Solutions revenue$15.0bnIn line with Goldman Sachs' $15.0bn and slightly above the market's $14.8bn.
• Infrastructure Software revenue$7.2bnIn line with both Goldman Sachs and market expectations.
• 3Q revenue guidance$29.4bnClose to Goldman Sachs' $29.5bn and clearly above the market's $28.2bn.
• 3Q AI Semiconductor revenue guidance$16.0bnBelow Goldman Sachs' $17.4bn and the market's $16.4bn.
• 3Q adjusted EBITDA margin guidance68%Close to Goldman Sachs' 68.1%, but below the market's 69.1%.
• Target price$500Based on 30x normalized EPS of $17.00.

Impact & implications

The investment implication is positive overall, though short-term volatility is possible. Overall earnings and revenue guidance support the Buy rating, but AI Semiconductor guidance coming in below expectations may weigh on near-term sentiment. If the upcoming earnings call can reinforce the FY26/27 AI growth narrative, XPU customer expansion, and margin expansion logic, it could ease market concerns about a slowdown in AI growth.

Risks

• A slowdown in AI infrastructure spending.
• Share loss in custom compute.
• Continued inventory digestion in non-AI businesses.
• Intensifying VMware competition.
• AI Semiconductor revenue guidance below market expectations could trigger short-term valuation pressure.

What to watch

• Whether the earnings call updates FY26/27 AI revenue growth targets.
• Progress in partnerships with existing and new XPU customers.
• The path of margin improvement in FY26/27.
• Whether AI Semiconductor revenue can again exceed market expectations.
• Whether inventory digestion in non-AI businesses and competitive pressure from VMware ease.