Broadcom (AVGO) reported Q4 revenue of $18B with AI semiconductor revenue up 74% to $6.5B. Broadcom stock dropped 21% post-earnings despite beating estimates.
Broadcom’s AI revenue is expected to double in Q1 to $8.2B. The company added a fifth custom chip customer with $1B in initial orders.
Gross margins of 77.9% are expected to decline 100 basis points in Q1 due to higher AI revenue mix and lower-margin rack solutions.
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Broadcom (NASDAQ:AVGO) delivered stellar fiscal fourth-quarter results earlier this month, with record revenue, beating analyst estimates. AI-driven growth powered the performance, yet the stock tumbled sharply afterward, dropping as much as 21% from $405 per share before the report to $321 per share in the following days.
While Broadcom shares have since recovered some ground, they remain approximately 15% below their pre-earnings levels. This selloff is the result of a disconnect between strong fundamentals and the market’s reaction.
There are three key reasons behind the decline in Broadcom stock, but these concerns open up an opportunity for investors to buy at a lower price.
Broadcom reported net revenue of $18 billion for the period, a 28% increase from $14 billion a year earlier. Semiconductor solutions revenue reached $11.1 billion, up 35% year-over-year, while infrastructure software contributed $6.9 billion, up 19%. AI semiconductor revenue was exceptionally strong, rising 74% year-over-year to $6.5 billion. Adjusted earnings came in at $1.95 per share, up 37% from the year-ago quarter, with adjusted EBITDA at $12.1 billion, for margins of 68%, which was also 34% higher than last year, allowing Broadcom to generate a 36% increase in free cash flow to $7.5 billion.
CEO Hock Tan highlighted the momentum, noting AI revenue growth drove the results. Broadcom also offered robust guidance for Q1, projecting revenue of $19.1 billion, up 28% year-over-year, with AI semiconductor revenue expected to double to $8.2 billion. Semiconductor revenue is forecast at about $12.3 billion, up 50%, underscoring continued demand acceleration.
While AI-related order backlog of over $73 billion — deliverable over 18 months — was substantial, representing nearly half of the consolidated $162 billion backlog, was lower than anticipated for the pace of AI demand. This backlog includes custom AI accelerators (XPUs) and networking components like the Tomahawk 6 switch, with over $10 billion in orders for the latter alone. Management described bookings as “unprecedented” in recent months, but the specific backlog number contributed to perceptions of moderating momentum.
