Broadcom Shares Tumble Despite Surging AI Revenue. Should Investors Buy the Dip?

Broadcom (AVGO 7.49%) shares tumbled despite another strong quarter of artificial intelligence (AI) revenue growth. Despite the slide, the semiconductor stock is still up more than 50% over the past year. Let's take a closer look at its results and prospects to see if this dip is a buying opportunity. Image source: The Motley Fool. Unchanged fiscal 2027 guidance sinks stock While Broadcom continued to see strong momentum in its networking and custom AI chip businesses, investors appeared disappointed that the company did not increase its target calling for more than $100 billion in custom AI chip sales next fiscal year. Its overall revenue in the quarter also fell short of analyst estimates due to slower-than-expected growth in its software segment. Broadcom's overall revenue for the quarter soared 48% year over year to $22.19 billion, while adjusted earnings per share (EPS) climbed 54% to $2.44. That compares to analyst expectations for adjusted EPS of $2.40 on revenue of $22.27 billion, as compiled by LSEG. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, surged by 69% year over year to $15.1 billion. Semiconductor revenue jumped 79% to $15.1 billion, led by a 143% surge in AI revenue to $10.8 billion. It forecasts that its AI semiconductor revenue will grow 180% year over year to $56 billion this fiscal year, before climbing to more than $100 billion in fiscal 2027. It expects its momentum to continue into fiscal 2028, powered by six core customers, including Alphabet, Meta Platforms, OpenAI, and Anthropic. Non-AI semiconductor revenue, meanwhile, rose 6% in the quarter to $4.2 billion. The company's closely watched semiconductor gross margin was approximately 70%. It said its overall semiconductor margin remains stable, while noting that its custom chip business has a lower margin, which is offset by its high-margin networking business. Infrastructure software revenue rose 9% to $7.2 billion, while annual recurring revenue (ARR) climbed 17%. The revenue was just short of the $7.3 billion consensus. Looking ahead, it expects fiscal Q3 revenue to climb 84% to $29.4 billion, ahead of the $28.5 billion consensus. The growth will be led by an expected 200% increase in AI semiconductor revenue to $16 billion. Infrastructure software revenue, meanwhile, is projected to climb 31% year over year, helped by its recent release of VMware Cloud Foundation 9.1. Today's Change(-7.49%) $-31.39Current Price$387.52 While investors were hoping for an increase in fiscal 2027 AI chip revenue guidance, there was nothing in Broadcom's report or comments to suggest the company's momentum is slowing. This is a huge opportunity for the company, and with its extended agreement with Alphabet and five other core customers, it is set to see explosive growth in the coming years. Importantly, Broadcom said it has locked in all the key components to support its outlook, which in a supply-constrained market with several bottlenecks is an edge that should not be overlooked. Following the dip, Broadcom stock now trades at a forward price-to-earnings (P/E) ratio of 22.5 times the fiscal 2027 consensus. That's a bargain given its growth, making the stock a solid buy at these levels.Geoffrey Seiler has positions in Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Broadcom, and Meta Platforms. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.