Is AI growth momentum slowing down? Broadcom Inc. (AVGO.US) reported record high revenue in Q2 but Q3 guidance fell short of the most optimistic expectations.

Chip giant Broadcom Inc. (AVGO.US) reported better-than-expected second-quarter results, but its guidance for the third quarter fell short of expectations, disappointing some investors. The financial report showed that in the second quarter ending May 4, Broadcom Inc. saw a 20% year-on-year increase in sales to $15 billion, slightly higher than analysts' average expectation of $14.96 billion; adjusted net profit was $7.79 billion, up 44% year-on-year; adjusted earnings per share were $1.58, beating analysts' average expectation of $1.56. Broadcom Inc.'s semiconductor solutions business, which provides products for data centers and networks, saw revenue increase by 17% year-on-year to $8.41 billion, surpassing analysts' average expectation of $8.39 billion. Broadcom Inc. CEO Hock Tan stated that the company achieved record revenue in a single quarter, attributed to growth in their semiconductor solutions business and the business of the cloud computing company VMware, which Broadcom Inc. acquired in 2023. Tan also mentioned that revenue from AI-related business in the second quarter grew by 46% year-on-year to $4.4 billion, driven by demand for network equipment, a significant slowdown compared to the 77% growth in AI-related revenue in the first quarter that Tan previously disclosed. However, Broadcom Inc. expects sales to reach $15.8 billion (a 21% year-on-year increase) in the third quarter ending August 3. While this forecast is higher than analysts' average expectation of $15.72 billion, it falls $1 billion short of some of the more optimistic analysts' expectations. The company also expects AI-related business revenue in the third quarter to increase to $5.1 billion. Although this expectation is better than the analysts' average expectation of $4.79 billion, some analysts' expectations go as high as $5.29 billion. Similar to NVIDIA Corporation, Broadcom Inc. is seen as a major beneficiary of the surge in AI spending, with data centers relying on its custom chips and network components for handling AI computing workloads. Since Broadcom Inc. reported its first-quarter performance in March, its stock price has risen by over 30%, reaching a market value of $1.2 trillion. Most of this increase came in the past month, driven by market expectations that substantial spending on AI devices will continue in the coming months. However, even though Broadcom Inc.'s second-quarter performance generally exceeded expectations, it still failed to surprise investors. Some analysts believe that the company's guidance for the third quarter appears lackluster, indicating that the AI spending frenzy may not be as strong as some investors had anticipated. As a result, at the time of writing, Broadcom Inc.'s stock fell over 4% in after-hours trading on Thursday.