Broadcom stock fell about 16% even after the company posted a record AI quarter and won fresh target hikes from Bank of America and Morningstar.
The selloff is the puzzle. A record quarter and bullish targets were met by a stock that dropped hard, and the answer lies in earnings quality and money flow, not the headlines.
Broadcom Stock Earns a Record Quarter and Target Hikes
Broadcom (NASDAQ: AVGO) gave the bulls plenty. Second-quarter revenue hit $22.2 billion, up 48% from a year earlier, a record. Yet, the price now stares at a big dip.
AI semiconductor revenue reached $10.8 billion, up 143%, and bookings topped $30 billion against $10.8 billion shipped. That backlog extends demand visibility into 2028.
The guidance went further. Management guided third-quarter revenue to about $29.4 billion, up 84%, put full-year 2026 AI revenue near $56 billion, around 180% growth, and reiterated more than $100 billion for 2027.
Software helped too. Infrastructure software added $7.2 billion, up 9%, with annual recurring revenue up 17%.
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Analysts responded. Morningstar lifted its target to $650 from $550, per FinViz, followed by Bank of America. Broadcom stock is up 37.86% this year and has rallied about 70% since late March.
Those records, however, hide a per-share story that helps explain the selloff.
The Quiet Numbers Under Broadcom Stock’s Hood
Pull up the multi-quarter picture, and the three charts disagree. Sales are a clean climb, from $11.96 billion in early 2024 to $19.31 billion, then $22.2 billion this quarter.
GAAP earnings per share are not clean. GAAP earnings are the official bottom-line profit per share, calculated after all costs. That includes one-time items like the bill for buying other companies, which is why the line jumps around.
EPS ran $0.28, then $0.44, then posted a $0.40 loss in one 2024 quarter due to acquisition charges. It recovered unevenly to $1.50 and the latest $1.91.
The share count is the quieter tell. It has crept up from 4.63 billion to 4.74 billion, so dilution works against holders even as the company buys back stock.
The current quarter shows the same squeeze on quality. Gross margin, the share of sales left after the direct cost of making the chips, was 77.1%. That is down 230 basis points, or 2.3 percentage points, from a year earlier.
Broadcom guides that figure to about 74% next quarter. The reason is the AI mix itself. Custom AI chips carry lower margins than the legacy chip and software lines. So the faster they grow, the more they pull down the blended margin.
That is the quiet warning in a record quarter. The same AI demand driving the headline numbers is also making each new dollar of sales less profitable. Records on the top line, thinner quality underneath.
If the growth is this good but the quality is slipping, the next question is simple. Did the money that sets the price already see it and start to leave?
Money Flow and Options Traders Turn Cautious
The flow had been fading before the print. The Chaikin Money Flow (CMF), a proxy for institutional buying and selling pressure, remains positive at 0.11, but has dropped from about 0.5 in early May.
From roughly May 14 to June 2, the price trended higher while the CMF trended lower. That bearish divergence, with sell volume near 50 million shares, suggests institutional buyers were thinning out as the rally progressed.
Options traders leaned the same way. The put-call ratio compares put to call activity, with a reading above 1 marking a bearish lean. Before the report, its open interest reading was 1.12.
After the June 3 results, that reading eased only to 1.09. The volume ratio even rose from 0.51 to 0.54 on fresh put buying. The options crowd kept paying for downside protection rather than chasing upside.
That is the link to the money flow. CMF tracks whether cash is moving into or out of the shares, and it was fading. The put-call ratio tracks how the options market is positioned, and it stayed defensive.
One reads the cash tape, the other reads the derivatives book, and both show the same caution in the rally.
With buying thinning and hedging building, the positioning data decides the rest.
The Positioning Data That Settle It
Crypto-native traders moving into stocks are bracing, too. On Hyperliquid, the perpetual smart money cohort is fully short at about $1.06 million, with nothing on the long side.
Whales tell a sharper story. The group holds about $4.00 million in AVGO, split $2.63 million short against $1.36 million long. That is a net short lean. The only long-only group, public figures, holds just $2,100, too small to matter.
One whale’s book shows why this is AVGO-specific, not an AI retreat. That trader runs a $1.69 million long on the S&P 500 and a $1.42 million long on Nvidia.
Yet the same wallet holds only about $25,000 of AVGO, a small long opened near $409 after the drop. So it is bullish the broad market and the wider AI trade while barely touching Broadcom.
These are synthetic crypto contracts that track sentiment and do not move the listed shares. Still, the lean matches the caution seen in the cash and options data.
Put together, the signals tell one story. Broadcom delivered records, yet the traders setting the price are leaning short or standing aside after the post-earnings drop. That holds even for wallets still long the rest of the AI complex.
The drop was not business-breaking. It was a crowded trade meeting, with guidance confirming strength without topping the highest hopes. For investors, the read is positioning, not panic.
