Broadcom Earnings Are the Latest to Try to Climb AI Wall of Fear
Bloomberg (Bloomberg) — Wall Street is expecting Broadcom Inc. to report strong earnings after the close on Wednesday, but based on recent trading patterns, even surpassing that high bar may not be enough to reverse the stock’s months-long slump. The chipmaker’s shares are down 24% from a December record, well underperforming the S&P 500 Index.…
(Bloomberg) — Wall Street is expecting Broadcom Inc. to report strong earnings after the close on Wednesday, but based on recent trading patterns, even surpassing that high bar may not be enough to reverse the stock’s months-long slump.
The chipmaker’s shares are down 24% from a December record, well underperforming the S&P 500 Index. The selloff is part of investors’ broader rotation away from the largest technology companies due to fears about the sustainability of the hundreds of billions of dollars committed to developing artificial intelligence capabilities. Broadcom, which is the seventh-most valuable company in the S&P 500 at $1.5 trillion, is a chipmaking partner with Alphabet Inc. and other AI giants, making it a beneficiary of that largesse.
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While those worries may come to fruition down the road, Broadcom looks solid right now. Analysts expect it to report a 27% jump in fiscal first quarter adjusted earnings per share from a year ago to $2.03, and a 29% increase in revenue to about $19.3 billion, with AI-related sales nearly doubling to roughly $8.2 billion. Few Wall Street pros would be surprised if the company also gave an encouraging outlook.
“Broadcom will have great things to say,” said Paul Meeks, head of tech research at Freedom Capital Markets. “But it may not matter.”
Consider what happened to Nvidia Corp. shares last week after the company’s earnings report. The chip giant beat Wall Street’s expectations and raised its forward guidance because of strong demand for its products and heavy capital expenditures planned by hyperscalers. And the stock plunged 9.4% over the next two sessions, its worst two-day decline since April.
Broadcom shares got pounded after the company’s previous earnings report in December, falling over 11% for their worst performance in nearly a year. The issue was a backlog of $73 billion on AI product orders over the next six quarters that fell short of expectations. Naturally, investors will want an update on that, as well as any developments in the tensor processing unit, or TPU, chips it’s building for Google, whose orders are expected to ramp up in the second half of the year. A deal with OpenAI also should contribute to an expansion into 2027.
‘Deep Moats’
“It’s going to be really important for them to emphasize their real expertise here in designing these large custom chips,” said Shaon Baqui, senior tech research analyst at Janus Henderson, which holds Broadcom shares. “They’ve got a real proven track record at Google with seven generations of Google TPU. That ability to execute generation after generation is really important, especially again, when you have to compete against Nvidia.”
“Building these giant AI accelerator chips is really hard,” he added. “I think it’s important for Broadcom to emphasize they actually have some pretty deep moats here.”
Another issue for Broadcom in its previous earnings report was its profit margin, with Chief Executive Officer Hock Tan saying that AI sales were weighing on the figure. Broadcom’s adjusted gross margin is expected to be about 77% in its fiscal first quarter, down from 78% in the previous quarter and 79% a year ago.
Analysts are likely to have questions about the company’s software business, which accounted for 42% of its total revenue in 2025. The segment used to be seen as a way to balance the cyclical nature of semiconductor sales, but a recent selloff in software names has pressured the stock.
“It’ll be interesting to see what they report, what they guide to for that particular segment,” said Freedom Capital’s Meeks. “They’re obviously going to have to answer questions point blank in the Q&A session about how they fit in with that portion of their business, which used to be a great diversifier. And now it’s seen as a big anchor in the age of AI.”
One thing the recent selloff in Broadcom shares has accomplished is making them cheaper. However, they still may have more room to fall. The stock trades at around 27 times forward earnings, which is down from a peak of 42 in December, but well above its five-year average of 22. It’s also higher than peer Nvidia’s valuation at 21 times.
Options traders are betting that the shares will be volatile after the report, pricing in a post-earnings move of roughly 7% in either direction. There are three things that could help lift the stock, according to Bloomberg Intelligence analyst Kunjan Sobhani: announcing more hyperscaler customers with a significant revenue contribution, a big jump in the AI backlog over the same time-frame or positive comments from Tan around deals with OpenAI and Anthropic.
But considering the market’s recent pessimistic reactions, even that may not be enough to spark a rally in Broadcom.
“It’s like the better results they’re giving, the worse the stock is doing,” Sobhani said. “That has been this earning season at least.”
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OpenAI Chief Executive Officer Sam Altman told employees that the company doesn’t get to make the call about what the Defense Department does with its artificial intelligence software and suggested the desire to do so may have been part of tensions between the Pentagon and rival Anthropic PBC.
CrowdStrike Holdings Inc. projected quarterly sales that were roughly in line with analysts’ estimates, signaling steady demand in an era when artificial intelligence has heightened concerns over cybersecurity threats.
SpaceX has added Citigroup Inc. to the banks leading its initial public offering, according to people familiar with the matter, as billionaire Elon Musk’s rocket and satellite company moves closer to a blockbuster debut.
Earnings Due Wednesday
Earnings Premarket:
Earnings Postmarket:
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–With assistance from Subrat Patnaik and David Watkins.
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