After NVIDIA Corporation's performance has "broken the ice," Broadcom Inc. (AVGO.US) needs a similarly "big result" tonight to stabilize market confidence.

After NVIDIA Corporation (NVDA.US) ignited the market with a record quarterly report of $96.2 billion and a 70% growth outlook for fiscal year 2028, the spotlight now turns to Broadcom Inc. (AVGO.US). The chip giant, valued at approximately $1.75 trillion, is set to release its third-quarter fiscal year 2026 financial report after the U.S. markets close on Wednesday. Wall Street expects this to be an "almost certain stunning" reportbut the real suspense lies in whether this stunning performance will be enough for investors to forget that night in June and regain faith in Broadcom Inc.s AI narrative. $520 billion wiped out in three months: a backlash from "perfect expectations" Since hitting an all-time high on June 2, Broadcom Inc.'s stock has fallen about 23%, making it one of the worst-performing 30 stocks in the S&P 500 during this period. This plunge was triggered by disappointing AI semiconductor revenue guidance in the second quarter earnings released on June 4 the company projected $16 billion in AI semiconductor revenue for the third quarter, far below analysts' expectations of over $17 billion. The day after the earnings report, Broadcom Inc.'s stock plummeted nearly 13%, marking the worst post-earnings performance since at least 2009. The intense reaction from investors to the "actually still very strong" guidance stemmed from the fact that expectations had been pushed to perfection. Previously, Broadcom Inc. CEO Hock Tan had predicted in the first quarter that AI chip sales would exceed $100 billion by 2027, pushing market expectations to their limitswhen the $16 billion quarterly guidance "only" met the company's own goals, investors chose to vote with their feet. Three months later, Broadcom Inc.'s stock has corrected over 20% from its June high, and its valuation has significantly compressed. The current stock price is about 21 times the expected earnings for the next 12 months, down from 42 times last December and 32 times in Junecreating room for "tactical positioning" after the earnings report. "People were indeed somewhat worried about NVIDIA Corporation before; after all, some of its previous good news triggered a fair amount of negative reaction. But last time it received a very positive market response," said JoAnne Feeney, a portfolio manager at Advisors Capital Management, which holds Broadcom Inc. stock. She added that if management can also provide reliable performance forecasts, NVIDIA Corporation's stock could see a similar response. Key numbers tonight: Wall Street's "report card" and "exam paper" Wall Street analysts expect Broadcom Inc. to report an adjusted earnings per share for the third quarter soaring above $3.22, with revenue growing 84% to $29.4 billion. These numbers are impressive on their ownan 84% revenue growth rate is nearly unprecedented for a company of Broadcom Inc.'s size. But as Morgan Stanley pointed out in their pre-earnings report: the real suspense lies not in whether the third-quarter targets will be met, but in the guidance for the fourth quarter and the outlook for 2027. Morgan Stanley forecasts fourth-quarter revenue to be approximately $34.8 billion, with AI semiconductor revenue expected to increase sequentially by 32% to $21.2 billion. The core variable driving valuationthe AI revenue expectation for fiscal year 2027Morgan Stanley's model predicts to be $120 billion, while some investors have raised their expectations to over $150 billion. The gap between these two numbers is the source of tonight's volatility. Broadcom Inc. previously set its 2027 AI revenue guidance at far above $100 billion. Morgan Stanley predicts AI revenue for fiscal year 2027 to be about $120 billion, but some investors' expectations have quietly climbed to $150 billion or even higher. The $30 billion gap between $120 billion and $150 billion is at the heart of the valuation divide. Morgan Stanley's research report bluntly stated: "The main risk before the earnings release lies in market expectations, rather than fundamentals." The firm warned: "If its $120 billion, Broadcom Inc. appears reasonably valued at the current stock price; but if its $150 billion, this stock looks very cheap." Feeney remarked, "They talk about AI semiconductor revenue reaching $100 billion or more. That 'or more' number is significant. If they can provide more specifics about this 'or more' figure, I believe the stock price could rise." Broadcom Inc.s position in the AI infrastructure field is unique. The company has disclosed that 99% of internet traffic passes through at least one Broadcom Inc. chip. In the custom ASIC chip market, Broadcom Inc. provides core computing power for companies like Alphabet Inc. Class C TPU and Meta MTIA, with network solutions deeply integrated into various aspects of data center operations. Shareholders will also be concerned that chip demand is not artificially created through cyclical financing transactions, as well as whether Broadcom Inc. will lose market share in the custom chip market to competitors like Alphabet and Marvell Technology, Inc. With memory costs high, the entire chip industry's gross margins are under pressure, so gross margins will also be a focal point. Additionally, the health of Broadcom Inc.'s infrastructure software division is crucial. Broadcom Inc. faces competitive pressure from multiple fronts. Alphabet Inc. Class C has incorporated Marvell Technology, Inc. into its custom chip supply chain, raising concerns about Broadcom Inc.'s share in Alphabet Inc. Class C TPU business. However, JPMorgan analyst Harlan Sur believes these concerns are "exaggerated," noting that Alphabet Inc. Class C is increasing partnerships to support its internal team and TPU ecosystem, but given the five-year agreement signed in early April, Broadcom Inc.s position as Alphabet Inc. Class C's primary TPU partner will not be displaced. Valuation and risk: "Tactical opportunities" amidst a stock price pullback, but market sentiment remains cautious Broadcom Inc.'s current valuation has significantly receded. The stock is currently trading at about 21 times expected earnings for the next 12 months, slightly above the ten-year average of 18 times, but down sharply from 42 times last December and 32 times in June. Benchmark analyst Cody Acree pointed out that the stock is currently trading at 19.2 times the estimated EPS for fiscal year 2027 and 14.3 times for fiscal year 2028, nearing the low end of the valuation range for AI peers. Acree believes this creates a "better tactical positioning" opportunity. But the key isif the guidance given on September 2 implies expectations of $120 billion, then no matter how well this quarter's actual performance is, investors hoping for $150 billion will feel disappointed. Of course, even if all factors ultimately converge into a reliable report, Broadcom Inc.'s stock may still face headwinds, as investors are cautious about various aspects of the AI trade. As Broadcom Inc. prepares to release its earnings, the performance of major players in the AI industry during this earnings season has been mixed. Hyperscale data center operators still plan to invest hundreds of billions in infrastructure, but resources are limited, and investors are becoming increasingly focused on return on investment. "There is a sense of panic in the market," said Jamie Meyers, a senior equity analyst at Laffer Tengler Investments, which holds Broadcom Inc. stock. "This panic is not just targeted at Broadcom Inc., but the whole industry faces this problem." "I think because momentum has been severely impacted, they have now become tentative," said Kim Forrest, chief investment officer at Bokeh Capital Partners. Meyers' summary is spot on: "Hock Tan's message is very clearthe growth trajectory is sustainable and accelerating." But as Jay Woods, chief market strategist at Freedom Capital Markets, remarked: "NVIDIA Corporation has proven that the AI party is far from over; now Broadcom Inc. needs to prove it has received a bigger invitation."