Yesterday we were watching whether Broadcom could sustain its AI momentum and deliver guidance that justified its 75% rally this year. The company beat on both revenue and earnings after the bell, and CEO Hock Tan delivered the kind of forward commentary investors wanted to hear. Yet shares tumbled as much as 9% in after-hours trading before stabilizing. This morning, the stock is trading around $388 in pre-market, down roughly 4.4% from yesterday’s $406.37 close.
Margin Pressure Overshadows Strong Guidance
The numbers looked solid on the surface. Q4 revenue hit $18.02B, topping the $17.49B estimate, while adjusted EPS of $1.95 beat the $1.87 consensus. AI semiconductor revenue surged 74% year over year, and management guided Q1 revenue to $19.1B, well above the $18.27B Street estimate. Tan projected AI chip sales would double to $8.2B next quarter.
But CFO Kirsten Spears flagged a problem that sent the stock lower. She guided Q1 gross margins down approximately 100 basis points sequentially, citing a higher mix of AI revenue. The company’s $73B backlog includes lower-margin system sales that will become a larger portion of revenue in the second half of fiscal 2026. As we noted in our coverage last night, margins were already a focus point heading into this print.
Anthropic Revealed, But Customer Concentration Remains
Tan ended the mystery around Broadcom’s unnamed fourth customer, confirming it was Anthropic. The AI startup placed an additional $11B order for delivery in late 2026, on top of the initial $10B commitment. Broadcom also secured a fifth custom chip customer with a $1B order. Yet the concentration risk remains. The $73B backlog still comes from just five customers, and analysts flagged concerns about reliance on a narrow set of hyperscalers for future growth.
What to Watch This Week
Our attention now turns to whether the margin pressure is transitory or structural. Investors will be watching how analysts adjust price targets after digesting the gross margin guidance. The stock’s early weakness suggests the market is rotating out of names trading at premium valuations when margin visibility deteriorates. If shares hold above the $385 level through the session, it may signal buyers are willing to look past near-term margin compression for long-term AI positioning.
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