Broadcom Launches $2.5B Debt Buyback as AI Revenue Miss Triggers Share Dip

Broadcom's $2.5B bond buyback and AI revenue miss drag stock 4.4%. Q3 revenue $29.4B (+84% YoY) but margin slips to 74%. Analysts bullish, avg target $490.

The chipmaker is pulling two financial levers at once: retiring old debt while navigating an expectations gap in its artificial intelligence business. Broadcom’s management set a Tuesday deadline for a tender offer to repurchase up to $2.5 billion of its own bonds, an exercise the company can comfortably fund thanks to a free cash flow of roughly $10 billion in the prior quarter — nearly half its total revenue at the time. Settlement of the tendered securities is slated to begin on Wednesday.

Shares have come under pressure in recent weeks, with the stock dipping 4.43% on Tuesday alone to close at €325.05. Over the past month, Broadcom has shed nearly 10% of its market value, retreating sharply from the record high reached in early June. The current price of about €324.65 positions the stock well below its peak, with a relative strength index of 40.5 signaling that the earlier overbought conditions have fully unwound. Still, the long-term trend remains intact — the shares continue to trade above their 200-day moving average.

The sell-off coincides with a closely watched AI revenue forecast that fell short of some Street hopes. Broadcom guided for roughly $16 billion in AI-related revenue for the third quarter, a figure that disappointed analysts who had pencilled in $17.2 billion. The management kept its full-year outlook unchanged, dashing expectations of an upward revision after a strong second quarter in which revenue surged 48% year over year to $22.2 billion.

Margin dynamics are also drawing scrutiny. For the current quarter, Broadcom expects its adjusted gross margin to slip to around 74%, down from 77.1% in the second period. The compression reflects a portfolio shift: custom AI accelerators are growing faster than the high-margin software segments, and while these hardware components are critical for big customers, they yield a lower percentage of profit.

Despite the near-term headwinds, the top line is projected to remain robust. Management anticipates third-quarter total revenue of approximately $29.4 billion, representing a 84% leap over the same period last year. The operating margin target stands at a lofty 68%, and the ongoing debt buyback should further reduce interest expenses. Analysts have responded to the volatility by maintaining a broadly positive stance; the average price target on the stock is around $490, with most ratings still at buy.

Longer-term ambitions remain aggressive. Broadcom has laid out a plan to surpass $100 billion in annual AI chip revenue by 2027, underpinned by a substantial order backlog. The combination of a massive cash pile, a debt retirement campaign, and a still-booming AI business suggests the market’s disappointment may be a short-term correction rather than a structural break.