Broadcom stock fell 15% on Thursday even after the chipmaker posted Q2 2026 revenue of $22.2 billion, a 48% jump from a year earlier, and AI semiconductor revenue of $10.8 billion — up 143% year over year. The drop came as investors focused on a shrinking gross margin and rising share count, overshadowing the numbers that easily topped Wall Street estimates.
AI growth remains the headline
The company guided Q3 2026 revenue to $29.4 billion, representing 84% year-over-year growth, and projected full-year 2026 AI revenue near $56 billion — a 180% climb. Broadcom’s AI chip business, driven by custom accelerators for hyperscale customers, now accounts for nearly half of total semiconductor revenue. But that shift is coming at a cost: the gross margin dipped 230 basis points to 77.1%, and the company sees Q3 margin around 74%.
Why margins are shrinking
The margin compression reflects a product mix tilt toward lower-margin AI chips compared to Broadcom’s traditional networking and storage silicon. While AI orders boost the top line, they eat into profitability per chip. The market is clearly pricing in that trade-off: the stock sold off sharply even as Bank of America raised its price target to $650 and Morningstar lifted its target to $550.
Dilution adds to the pressure
Broadcom’s share count rose from 4.63 billion to 4.74 billion over the quarter, diluting existing holders despite the company's ongoing buyback program. That dilution is small in percentage terms — about 2.4% — but it compounds when margins are already under scrutiny. For investors looking at earnings per share, the math gets worse as more shares chase the same profits.
Options market stays cautious
The options market isn't convinced the selloff is over. The put-call ratio stood at 1.12 before earnings and ticked down only slightly to 1.09 after the report — still firmly in bearish territory. Meanwhile, Chaikin Money Flow, a measure of institutional buying pressure, slid from 0.5 in May to 0.11 in early June. That suggests big money is stepping back, not stepping in.
The question now is whether Broadcom’s AI momentum can eventually win over the skeptics — or whether margin and dilution concerns will keep the stock from recovering until the next earnings cycle.
