3 Reasons Broadcom Crashed 15% on Blockbuster Earnings — And the Real Reason to Load Up Now

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 Shows Exceptional Strength

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.

Reason 1 For the Selloff: AI Backlog

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.

Reason 2: Expected Margin Pressure

Where gross margins were 77.9%, management said it expected a sequential decline of about 100 basis points in Q1 due to a higher mix of AI revenue, including passthrough costs in rack-level solutions. AI semiconductors, particularly custom chips and systems, carry lower margins than traditional products. Semiconductor gross margins are around 68%, compared to 93% for infrastructure software. As AI becomes a larger portion of revenue, this mix shift is expected to dilute overall margins slightly, even as absolute operating profit dollars grow.

Reason 3: Slowing Growth in Infrastructure Software

A third concern was the outlook for infrastructure software, primarily from VMware. Although segment revenue grew 19%, guidance called for low double-digit growth next year, with Q1 at $6.8 billion, only 2% higher  year-over-year. This deceleration from prior rates raised questions about sustained momentum in the software segment, which has offered high-margin stability.

Why This Is a Buying Opportunity

Despite the stock’s tumble, Broadcom’s outlook remains robust, driven by accelerating AI demand that management describes as a multiyear trend. AI revenue is on track to double in Q1, fueled by custom accelerators and Ethernet networking. 

The company has also diversified its customer base, adding a fifth XPU client with a $1 billion initial order for delivery in late 2026, alongside follow-on commitments worth $11 billion from existing hyperscalers. Networking backlog for AI switches exceeds $10 billion, reflecting strong deployment needs.

Moreover, bookings have surged recently, with visibility into leading-edge nodes and advanced packaging secured through facility expansions. Non-AI semiconductors remain stable, supported by a recovery in broadband. 

Broadcom continues to deliver strong capital returns, raising its dividend 10% and extending a $7.5 billion repurchase program. These factors point to sustained growth in 2026 and beyond. Broadcom is likely to surprise the market in future earnings reports with its strength, making the drop in its stock today the time to buy.