Broadcom's Q2 performance is lukewarm; how will it run after reaching a new high in stock price?

As an absolute leader in the communication chip sector, Broadcom's stock price has reached a new high this year. However, the latest Q2 performance released was lukewarm, and the stock price surged then retreated. How should the market outlook be considered?

In fact, Broadcom's overall performance in Q2 exceeded expectations with revenue surpassing 15 billion USD, a year-on-year growth rate of 20%. The company's two main segments, including semiconductor business and infrastructure software, contributed 56% and 44% of revenue respectively.

Among them, semiconductor revenue grew 17% year-on-year, with a growth rate exceeding 5% for four consecutive quarters, which can be considered excellent. This growth mainly comes from the AI business of semiconductors. According to Broadcom executives, the growth momentum in AI semiconductors is expected to continue until 2026 and will become a focus for the company in the future.

Currently, the company's AI revenue primarily comes from major clients such as Google, Meta, and ByteDance. With new clients like OpenAI and SoftBank joining, it is expected that there will be new incremental growth by 2026, which is worth highlighting.

In terms of infrastructure software business, revenue is currently stabilizing, and the VMware acquisition has also reached a conclusion, no longer contributing to high revenue growth. In comparison, the AI business appears increasingly important.

From a profitability perspective, Broadcom ranks among the top in the entire semiconductor industry. The gross margin has consistently maintained a high level of over 60%, and the net margin has recovered to over 30% in the past few quarters since the VMware acquisition ended in 2024.

Considering the cyclical characteristics of the semiconductor industry, the company's inventory level is also an important observation indicator. Broadcom's inventory/revenue has long maintained below 30%, which is a very low level in the industry, demonstrating Broadcom's capabilities in inventory management.

In addition, Broadcom is also one of the few dividend aristocrats among Technology stocks, with a dividend yield far ahead of its peers. Over the past five years, dividend and buyback have even exceeded the company's net profit, demonstrating great generosity in shareholder returns.

In summary, Broadcom can be considered an excellent company in the Industry, and its stock performance this year has also been remarkable. The decline after Q2 results may mainly be due to market expectations of the AI Business, which require the company to deliver more than expected performance. Future observations should focus on the progress of the AI Business, while also paying attention to performance growth, profitability, inventory changes, and shareholder returns.

From a technical perspective, referring toFibonacci trend extension lines, in the short term, a rough estimate can determine the reference Target Price as $273.796, with a support level of $245.021.

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