Why Broadcom Stock Dropped Today
Key Points
Broadcom beat on sales and beat on earnings last night.
Investors are upset with Broadcom's guidance, however, which forecasts a Q4 sales miss.
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Broadcom (NASDAQ: AVGO) stock -- which really needs to get around to updating its ticker symbol one of these days -- tumbled 6.3% through 10:30 a.m. ET Thursday despite beating on earnings last night.
Heading into the company's fiscal Q3 2026 report, analysts forecast Broadcom would earn $3.21 per share (non-GAAP) on $29.2 billion in sales. In fact, Broadcom earned $3.32 per share on $29.6 billion in sales.
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It might not have been a blowout, but it certainly was a beat, so why aren't investors more impressed?
Image source: Getty Images.
Broadcom Q3 earnings
After all, Broadcom grew its sales 86% year over year in Q3. GAAP profits weren't quite as strong as non-GAAP, but calculated under generally accepted accounting principles (GAAP), earnings per share still more than tripled to $2.68, and free cash flow zoomed 34% higher to $13.7 billion!
All things considered, it was a terrific quarter.
What comes next for Broadcom stock
The question investors are asking, though, is whether Broadcom can keep this up? Turning to guidance, Broadcom CEO Hock Tan confirmed "demand for our custom AI accelerators and networking continues to be very strong" and "the momentum continues" as we enter Q4, with AI semiconductor revenue expected to triple again to $21.7 billion.
Assuming this happens, Broadcom might reach $34.8 billion in Q4 sales, with AI accounting for 62% of the total. Problem is, as good as this sounds, Wall Street was expecting Broadcom to predict more than $35 billion. When Broadcom failed to do that, they basically marred their Q3 earnings beat with a Q4 guidance miss -- and that's what's upsetting investors today.
Personally, I think selling Broadcom stock is a bad call. With a 61x price-to-earnings ratio and projected 60% annual growth over the next five years, the stock looks fairly priced to me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom. The Motley Fool has a disclosure policy.
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