Broadcom's Best Quarter in History Triggered a 25% Drop. Is the AVGO Stock Dip Worth Watching?

On the evening of June 3, 2026, Broadcom reported one of the finest financial quarters in its existence. Revenue grew 48% year-over-year to a record $22.2 billion. AI chip revenue jumped 143% to $10.8 billion. Free cash flow crossed $10 billion in a single quarter for the first time ever. The EBITDA margin expanded to 69%. By the next morning, the AVGO stock had fallen over 12% in a single session, and over the following days AVGO slid roughly 20-25% from the all-time intraday peak of $495 it had touched earlier that same day, wiping out close to $300 billion in market value. A company that had closed near record levels on Tuesday and hit a fresh intraday high on Wednesday was being treated like it had disappointed. The contradiction is not a glitch. It is actually the most useful signal for any investor trying to understand what Broadcom is right now.

Let's break down exactly what happened on June 3, why a record-breaking quarter produced a double-digit selloff, what a number buried in the earnings call tells us about the next two years of Broadcom's business, and what the forward math looks like at current prices.

Why Did Broadcom Stock Fall Despite Record AI Earnings?

Broadcom reported Q2 FY2026 revenue of $22.19 billion, up 48% from the prior year, with AI semiconductor revenue of $10.8 billion, adjusted EBITDA of $15.24 billion at a 69% margin, and free cash flow of $10.26 billion which is 46% of revenue and it is also the first time the company crossed $10 billion in free cash flow in a single quarter.

Source: Broadcom Q2 FY2026 Earnings Release, SEC Form 8-K, June 3, 2026

EPS came in at $2.44 against a consensus estimate of $2.40, and Q3 revenue guidance of around $29.4 billion came in well above the Wall Street estimate of $28.53 billion. So why the selloff?

Two things rattled investors. Management did not raise the company's full-year AI semiconductor sales target of $100 billion-plus for fiscal 2027. CEO Hock Tan reaffirmed it rather than raising it. Broadcom also acknowledged that Google, its largest AI chip customer, is beginning to bring MediaTek into its TPU supply chain as a secondary vendor. Neither of these is a fundamental collapse in the business. But when a stock has run up roughly 40% through the first five months of 2026, anything short of a raised forecast reads as a miss.

There's a useful cricket parallel here. Imagine your team posts 185 runs chasing a target, a strong score by any measure, but the entire stadium had expected 210. The team won. The crowd walked out disappointed anyway. That is the precise dynamic at work on June 4.

Why Broadcom’s AI Bookings Matter After the AVGO Dip

Sources: Broadcom Q2 FY2026 Earnings Call Transcript (Yahoo Finance, Motley Fool); MLQ.ai

In Q2 FY2026, bookings for AI semiconductors were over $30 billion against the $10.8 billion Broadcom shipped. Management noted that visibility now runs "all the way to 2028."

That ratio deserves more attention than it got. Broadcom does not sell off-the-shelf chips. It designs custom AI accelerators, called XPUs or ASICs, built to the exact specifications of each customer's computing architecture. Google's chip is different from Meta's, which is different from Anthropic's. Because these are bespoke designs, the cycle from order to delivery runs 18 to 24 months. A booking today is essentially committed revenue for the next two years.

Think of it like a premium tailor in Mumbai who stitches custom suits for five of the city's biggest corporate families. He can complete three suits a month. His order book has 300 suits committed through 2028. His monthly revenue looks modest. His actual business is extraordinary. The order list is the real measure of health, not last month's delivery count. Broadcom's bookings are that order list.

The customers behind these bookings include Google, Meta, Anthropic, OpenAI, and two additional hyperscalers beginning to ramp production, with $6 billion in orders already booked from those two new accounts. Multi-year agreements underpin the long-term $100 billion-plus AI semiconductor revenue expectation for fiscal 2027.

JPMorgan, in its post-earnings note, noted that AI bookings of $30 billion in a single quarter far exceed sell-side estimates and cited Broadcom's growing roster of hyperscale customers as structural evidence that the custom ASIC market is expanding rather than peaking.

What Wall Street Analysts Said After Broadcom Stock Fell

Rather than treating the selloff as an exit signal, major institutional analysts raised their price targets within 24 hours of the drop.

Sources: TheStreet, MEXC, Benzinga, Stocktwits, Benzinga, as of June 4-9, 2026

As of June 2026, the Wall Street consensus across 46 to 51 active analysts sits at zero Sell ratings, with the average price target ranging from approximately $486 to $507. According to 48 analysts polled by S&P Global, the average 12-month target is $522.06, implying approximately 34-38% upside from current levels around $390.

Macquarie's downgrade to Neutral is the notable exception. The firm projected Broadcom's share of Google's TPU-related revenue falling from approximately 95% in 2026 to around 80% in 2027 and 65% in 2028, as MediaTek gains a larger role.

Is AVGO Valuation More Attractive After the 25% Dip?

The trailing price-to-earnings ratio for AVGO, at roughly 65 times as of mid-June 2026, looks expensive at first glance. But that number is backward-looking. It includes periods before the AI revenue cycle accelerated. Forward earnings are the more relevant lens.

Sources: BofA Securities analyst model (FY2026, FY2027 non-GAAP EPS estimates per TheStreet/Yahoo Finance); FinanceCharts historical P/E data; MacroTrends PE ratio as of June 12-15, 2026

BofA Securities analyst Vivek Arya raised his FY2026 EPS estimate to $11.60 and FY2027 estimate to $17.93, and reiterated a Buy rating with a $530 price target, applying a 30x multiple on his calendar-year 2027 earnings estimate.

At approximately $390 per share, the stock is trading at roughly 22 times its estimated FY2027 non-GAAP earnings. Its five-year historical average P/E is approximately 68 times. A company guiding for over 200% year-over-year AI revenue growth next quarter, trading at 22 times two-year-forward earnings, is not expensive by the standards of its own history. Whether that gap between the current multiple and the historical average closes is a question of execution, not just valuation math.

Worth noting separately: free cash flow. At $10.26 billion in Q2 FY2026 alone, Broadcom's free cash flow now represents 46% of revenue. Annualized, that puts the company's free cash flow run rate at over $40 billion a year. At a market cap near $1.85 trillion, the free cash flow yield is no longer trivial for a company at this scale.

Risks Investors Should Watch Before Reading the AVGO Dip as an Opportunity

The Google-MediaTek risk is the most concrete near-term concern and should not be brushed aside. Broadcom acknowledged on the earnings call that it expects "some modest supplier diversification" from Google as TPU demand grows large enough to require multiple vendors. Macquarie's projections suggest Google's revenue contribution to Broadcom could fall from roughly 95% in 2026 to 80% in 2027 and 65% in 2028.

Google remains Broadcom's single largest AI customer. If the new accounts, Meta, Anthropic, OpenAI, and the two undisclosed customers, do not scale fast enough to fill the gap, the $100 billion FY2027 guidance becomes harder to achieve. This is an execution dependency with real uncertainty attached.

Gross margin is the second risk. CFO Kirsten Spears guided Q3 non-GAAP operating margins at approximately 67%, down from 69% in Q2, noting that higher AI system revenue, which carries lower margins than pure semiconductor or software business, is responsible for the compression. As AI hardware becomes a larger share of the mix, this pressure likely continues. The question is whether volume growth offsets the margin dilution.

Finally, the valuation still carries a premium. A 22x FY2027 forward P/E is not cheap in absolute terms, particularly if AI capital expenditure growth decelerates or macro conditions shift. High-growth names at Broadcom's scale can reprice quickly when expectations reset.

What Past AVGO Selloffs Suggest After Big Earnings Drops

Broadcom has seen large post-earnings drops before. After the December 2024 earnings report, the stock fell approximately 19% on margin concerns, only to recover and hit all-time highs by mid-2026. A Yahoo Finance analysis of AVGO's price behaviour after single-day drops of 6% or more found that the median return over the following 12 months was approximately 61%, with shorter-term medians of roughly 8% at one month, 20% at three months, and 35% at six months.

Source: Yahoo Finance historical price analysis of AVGO post-drop behaviour

History does not guarantee a repeat. The specific dynamics of this particular drop, mainly the Google diversification narrative, are somewhat different from prior instances. But the broader pattern is consistent: large post-earnings drops in AVGO have typically been driven by expectation resets, not fundamental deterioration, and the stock has historically recovered once quarterly results confirm the underlying growth trajectory remains intact.

The next earnings call is scheduled for September 3, 2026. That report will be the first real test of whether Q3's $16 billion AI revenue guidance was achieved.

What We Think About Broadcom Stock: Is the 25% Dip About Expectations or Fundamentals?

The June 3 selloff was almost entirely about what management did not say, not what they reported. The numbers were exceptional. The market punished the stock for failing to raise already elevated guidance, for confirming what was already widely known about Google's MediaTek diversification, and for switching from an integrated AI systems model to a chips-only approach mid-cycle.

None of those are good reasons to conclude the business is broken.

Broadcom's AI semiconductor bookings of $30 billion in Q2, against $10.8 billion shipped, give the company demand visibility extending into 2028. Management guided $16 billion in AI revenue for Q3 and reiterated the $100 billion-plus fiscal 2027 target. Six confirmed hyperscaler customers are now ordering custom chips. The VMware infrastructure software business continues to contribute steady recurring cash flows, providing a buffer against the lumpier chip revenue cycle.

The core question every investor has to sit with is whether the Google revenue share loss to MediaTek over 2027 and 2028 is offset by new customer volume. Management believes it is. The vast majority of Wall Street believes it is. The one dissenting voice, Macquarie, believes the math is tighter than the bulls acknowledge.

At current valuations, the forward numbers suggest the stock is pricing in a meaningfully worse scenario than what management is guiding for. That gap is either an opportunity or a sign that the market knows something management hasn't fully disclosed yet. What the numbers show is this: the dip was driven by expectation compression, not evidence of a broken business model. And in Broadcom's own history, that distinction has mattered a great deal.