Broadcom (AVGO) Is Down 7.8% After AI Growth Outlook Lifts Revenue But Squeezes Margins

• Earlier this week, Broadcom Inc. reported fiscal 2025 results showing revenue rising to about US$63.89 billion and net income to roughly US$23.13 billion, and guided for first‑quarter fiscal 2026 revenue of approximately US$19.1 billion, about 28% higher than the prior year period.
• The company also disclosed that fast‑growing AI chip sales are expected to double in early 2026 but will compress consolidated gross margins, even as the board approved a 10% increase in the quarterly dividend to US$0.65 per share and Broadcom deepened cloud-infrastructure ties with clients like ING via VMware Cloud Foundation 9.0.
• We’ll now explore how Broadcom’s strong AI-driven growth but softer margin outlook could reshape the earlier investment narrative around AVGO.

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Broadcom Investment Narrative Recap

To own Broadcom, you need to believe its AI accelerators, Ethernet networking and VMware software can collectively support durable, high‑margin growth despite customer concentration and a premium valuation. The latest results reinforce AI as the main near term growth driver, but management’s guidance for slightly lower consolidated gross margins highlights that profitability, not demand, is the key short term swing factor. That margin pressure, together with hyperscaler spending discipline, is probably the biggest risk right now.

The Q1 fiscal 2026 revenue outlook of about US$19.1 billion, up roughly 28% year on year, is the announcement that matters most here, because it confirms strong AI demand is flowing through into the top line even as mix shifts weigh on margins. In parallel, the expanded VMware Cloud Foundation 9.0 deployment at ING shows how Broadcom is still working to deepen high value software relationships, which could help balance the lower margin AI hardware ramp over time.

Yet even with AI orders surging, investors should be aware of how quickly consolidated gross margins could compress if...

Read the full narrative on Broadcom (it's free!)

Broadcom's narrative projects $119.6 billion revenue and $50.8 billion earnings by 2028. This requires 25.9% yearly revenue growth and a $32.0 billion earnings increase from $18.8 billion today.

Uncover how Broadcom's forecasts yield a $403.66 fair value, a 12% upside to its current price.

Exploring Other Perspectives

Forty two fair value estimates from the Simply Wall St Community span roughly US$253 to US$480 per share, so individual views on Broadcom’s worth vary widely. Against that backdrop, the recent guidance that AI growth will come with lower consolidated gross margins raises fresh questions about how sustainable earnings power could shape where in that range future outcomes might sit.

Explore 42 other fair value estimates on Broadcom - why the stock might be worth 30% less than the current price!

Build Your Own Broadcom Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Broadcom research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.
• Our free Broadcom research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Broadcom's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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