Broadcom (AVGO -3.95%), the semiconductor company that’s profited so much from the artificial intelligence (AI) revolution of late, saw its stock slump 3% through 10 a.m. ET this morning after reporting that it beat earnings last night… just barely.

Heading into the company’s fiscal second quarter of 2025, which ended May 4, analysts forecast Broadcom would earn $1.57 per share in adjusted profits on sales of just under $15 billion. In fact, Broadcom earned $1.58 per share, and its sales were $15 billion.

Image source: Getty Images.

Broadcom Q1 earnings

Sales grew 20% year over year in Q2, setting a new quarterly record boosted by 46% year-over-year growth in revenue from AI chips. Adjusted earnings grew twice as fast, up 43%, but generally accepted accounting principles (GAAP) earnings did even better, more than doubling to $1.03 per share. (So while GAAP profits weren’t nearly as good as non-GAAP, at least they’re growing faster.)

On the other hand, Broadcom noted that its free cash flow (FCF) in Q2 was only $6.4 billion. And while that represented 44% year-over-year growth, in line with adjusted earnings growth, it was apparently less than the $7 billion FCF that analysts had hoped Broadcom would produce. This realization seems to be outweighing the news of the earnings beat, and depressing Broadcom stock today.

Is Broadcom stock a buy?

Should investors be worried about this? Not necessarily.

While I’m not usually thrilled to see such a large gap between GAAP earnings and non-GAAP earnings, Broadcom’s generating tremendous free cash flow — $22.7 billion over the last 12 months, or nearly twice reported net income.

The stock’s valuation is high; its price-to-free-cash-flow ratio is 52.5. But Broadcom is growing FCF fast enough that I think the valuation might be justified — and Broadcom stock could still be a buy.