Broadcom Q2 Net Profit Surges 88% YoY. But Shares Slump 8% After Hours in Classic “Buy the Rumor, Sell the News”

TradingKey - On June 3, Eastern Time, Broadcom ( AVGO) released its second-quarter fiscal 2026 financial results after the U.S. market close. The company's shares dropped over 8% at one point; as of press time, they remained down 5.33% at $453.70.

During the period, Broadcom's revenue rose 48% year-over-year to a record high of $22.187 billion, though this fell slightly short of market expectations of $22.27 billion.

Breaking down the business segments, semiconductor solutions revenue was $15.009 billion, up 79% year-over-year and accounting for 68% of total revenue, remaining the company's primary income source. Broadcom CEO Hock Tan expects third-quarter AI semiconductor revenue to grow by more than 200% year-over-year. Infrastructure software revenue was $7.178 billion, up 9% year-over-year, representing 32% of total revenue.

Under GAAP, net income was $9.31 billion, an 88% year-over-year increase, with a corresponding adjusted EPS of $1.91. Under non-GAAP, net income was $12.074 billion, up 55% year-over-year, corresponding to an adjusted EPS of $2.44.

Regarding guidance, Broadcom expects third-quarter revenue to be approximately $29.4 billion, higher than the market's average expectation of $28.6 billion.

While Broadcom has made significant progress in its AI transition, investor expectations have surged accordingly. In the five trading days leading up to the earnings release, the company's stock price rose 13.6%, adding approximately $270 billion in market capitalization.

Judging by the stock price performance, this is a classic 'buy the rumor, sell the news' scenario. Despite strong third-quarter guidance and rapid growth in AI chips, total second-quarter revenue slightly missed market expectations.

Furthermore, because the stock price had already front-run the results during the five trading days prior to the report, market expectations were pushed exceptionally high, leading to a very slim margin for error. Any minor flaw would trigger profit-taking by bulls.