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Broadcom Drops 9% in a Month: Buy, Sell or Hold the AVGO Stock?

Broadcom AVGO shares dropped a massive 9.1% in the past month, underperforming the broader Zacks Computer and Technology sector’s return of 2%. The drop reflects a disappointing near-term guidance and the lack of a meaningful increase to AVGO’s longer-term AI outlook. Broadcom raised its forecast f…

Broadcom AVGO shares dropped a massive 9.1% in the past month, underperforming the broader Zacks Computer and Technology sector’s return of 2%. The drop reflects a disappointing near-term guidance and the lack of a meaningful increase to AVGO’s longer-term AI outlook. Broadcom raised its forecast for fiscal 2026 AI semiconductor revenues to $56 billion and reiterated expectations for more than $100 billion in AI revenues in fiscal 2027.

However, this was not enough for investors who had anticipated an even larger upward revision, given Broadcom’s record $30 billion in quarterly AI bookings, accelerating demand from hyperscale customers and management's comments about “insatiable” AI demand.

Broadcom also guided for the gross margin to decline to 74% in the third quarter of fiscal 2026 from 77.1% in the fiscal second quarter due to a greater mix of lower-margin AI semiconductor revenues, raising concerns that profitability may not scale as quickly as revenues.

The combination of margin pressure and guidance that failed to exceed bullish investor assumptions triggered a sharp post-earnings selloff. So, what should investors do with the AVGO stock post the dip? Let us find out.

AVGO’s Prospects Suffer From Multiple Challenges

Broadcom’s AI growth story is concentrated around approximately six large customers, including Google, OpenAI, Anthropic and Meta Platforms. Management repeatedly referenced these few customers as the primary drivers of future demand. The company is also suffering from elevated AI expectations. Any lag in AI deployment schedules, power availability constraints, customer spending moderation or supply chain issues could lead to significant investor disappointment.

While AI semiconductor revenues are growing in the triple digits, infrastructure software grew only 9% year over year in the second quarter of fiscal 2026. The company is becoming increasingly dependent on AI semiconductors as the primary growth engine, which is a headwind for investors.

Can AVGO’s Strong AI Growth Boost Competitive Prowess?

Broadcom shares have been benefiting from rising AI revenues, driven by strong demand for custom AI accelerators (XPUs) despite lower margins on the chips that are hurting the revenue mix. AI semiconductor revenues reached a record $10.8 billion in the fiscal second quarter, suggesting a 143% year-over-year surge, and Broadcom management expects it to rise to $16 billion in the fiscal third quarter, indicating more than 200% year-over-year growth.

AVGO management disclosed that AI semiconductor bookings exceeded $30 billion during the fiscal second quarter, nearly three times quarterly AI shipments. CEO Hock Tan stated that visibility now extends through 2028, supported by commitments from major customers including Google, OpenAI, Anthropic and Meta Platforms. Remaining Performance Obligations reached $164.6 billion, including commitments under new custom AI accelerator contracts. These agreements provide exceptional long-term revenue visibility.

The company’s strong portfolio is expected to help it steer off stiff competition from NVIDIA NVDA, Advanced Micro Devices AMD and Skyworks SWKS in the AI domain. NVIDIA is benefiting from strong demand for Hopper and Blackwell architectures, while AMD’s prospects are benefiting from strong demand for EPYC and Instinct processors. Skyworks is benefiting from growing demand for its solutions across edge IoT, automotive and infrastructure end markets, as well as the pending acquisition of Qorvo. AMD shares have returned 5.6% in the past month, while NVIDIA and Skyworks have dropped 6.6% and 17%, respectively.

AVGO Stock’s Price Performance

Broadcom is not only supplying custom AI accelerators but also dominates AI networking with Tomahawk 6 Ethernet switches, Jericho fabric solutions, co-packaged optics and industry-leading SerDes technology. Networking represented almost 40% of AI semiconductor revenues in the fiscal second quarter, expanding Broadcom's content per AI cluster.

AVGO’s Earnings Estimate Revision Shows Positive Trend

The Zacks Consensus Estimate for third-quarter fiscal 2026 earnings is pegged at $3.22 per share, up 1.6% over the past 60 days, indicating 90.5% growth from the figure reported in the year-ago quarter.

The Zacks Consensus Estimate for fiscal 2026 earnings is pegged at $11.73 per share, up 2.4% over the past 60 days, indicating 72% growth from the fiscal 2025 reported figure.

Broadcom Inc. Price and Consensus

Broadcom Inc. price-consensus-chart | Broadcom Inc. Quote

AVGO Stock: Buy, Sell or Hold?

Broadcom shares are trading at a premium, as suggested by the Value Score of D.

In terms of the forward 12-month price/sales (P/S), AVGO is trading at 11.4X, higher than the broader sector’s 6.88X. Broadcom is also trading at a premium against peers, NVIDIA and Skyworks, shares of which are currently trading at 10.63X and 2.35X, respectively.

AVGO Shares Are Overvalued

Broadcom’s expanding AI portfolio is expected to drive top-line growth. However, elevated AI expectations, a decline in gross margin expansion and customer concentration do not justify AVGO’s current valuation.

Broadcom currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to start accumulating the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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