Broadcom beat earnings yet again, but the market sold off when CEO Hock Tan refused to raise his fiscal 2027 AI target. Deutsche Bank says the dip is a gift.
Broadcom (AVGO) reported Q2 fiscal 2026 earnings that should have delighted any tech investor: AI revenue of $10.8 billion—up 145% year-over-year—plus total revenue of $22.187 billion and non-GAAP EPS of $2.44, all above consensus. Q3 guidance calls for $16 billion in AI revenue, up 48% sequentially.
The market still dropped the stock. The trigger: Hock Tan declined to raise the existing "over $100 billion" AI revenue target for fiscal 2027. For a market craving explosive growth signals, his caution read as retreat.
What the Market Missed
Deutsche Bank analyst Ross Seymore sees the situation differently. Three months ago, Broadcom's demand visibility stretched "through 2027." Now it extends "through 2028." That extension alone, Seymore argues, is a major bullish signal that investors chose to ignore.
Broadcom's own bookings support the case. Q2 bookings exceeded $3 billion, and AI revenue is on track to double in both halves of fiscal 2026—putting full-year AI revenue near $56 billion.
Deutsche Bank's forecasts are notably more bullish than Broadcom's official guidance:
| Fiscal Year | AI Revenue (Deutsche Bank) | Broadcom Guidance |
|---|---|---|
| 2026 | ~$56B | ~$50B+ |
| 2027 | $125B | $100B+ |
| 2028 | $190B | — |
Deutsche Bank projects fiscal 2027 AI revenue 25% ahead of what Broadcom publicly commits to. By 2028, the bank sees nearly $200 billion in annual AI revenue—a number that reframes the investment case entirely.
The Real Story Beyond 2027
Hock Tan called AI-driven XPU and network switch demand "almost unsatisfiable" during the earnings call. Custom chip demand from hyperscalers shows no signs of tapering, and visibility extending through 2028 suggests this is structural, not cyclical.
One legitimate concern: gross margins. Q3 adjusted gross margin is expected to decline roughly 3 percentage points as AI revenue climbs toward 78% of total semiconductor revenue. Higher AI mix structurally dilutes margins. Deutsche Bank, however, expects operating expenses to grow far more slowly than AI revenue, which should keep operating margins broadly stable—the operating leverage from AI scale is the key variable.
Capital allocation also drew notice. Broadcom paid $3 billion in dividends this quarter but repurchased only $600 million in stock while paying down $1.25 billion in debt. Deutsche Bank reads this as strategic cash accumulation for AI-driven capital expenditures, not a sign of weakness.
Two Firms, Two Valuation Views
Deutsche Bank raised its price target from $430 to $515 (roughly 20% upside) while maintaining a buy rating and calling the post-earnings drop a buying opportunity. Citigroup's Atif Malik held a buy rating at $500 but placed valuation in the lower end of the 20–40 times range, flagging competition risk. Both see upside—but from different starting points of caution.
The Takeaway
The market punished Hock Tan's refusal to raise his fiscal 2027 AI target. Deutsche Bank's response: this is managerial conservatism, not deteriorating fundamentals. The actual numbers projected for 2027 and 2018 are what make Broadcom's AI story compelling. A 14% after-hours selloff that one major analyst calls a buying opportunity deserves a second look.
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