Broadcom's Stock Falls After Earnings Report Despite Surge in AI Demand

Key Highlights:

• Broadcom posted strong earnings for its Q4 FY2025, surpassing expectations.
• Shares initially rose by more than 3% but fell over 4% after the earnings call.
• AI semiconductor revenue is projected to double in Q1 FY2026, marking a significant growth.

Semiconductor leader Broadcom (NASDAQ: AVGO) reported solid earnings on December 11, 2025, despite a strong market performance in 2025 with a 70% return. However, after the reports release, Broadcom's stock saw a sharp reversal in after-hours trading. Initially up by 3%, the stock dropped by over 4% after the companys earnings call.

Impressive Earnings and Growth

In its Q4 FY2025, Broadcom posted a revenue of around $18.02 billion, a 28% increase compared to the same period last year. This performance exceeded expectations of $17.46 billion, which represented a 24% growth. Adjusted earnings per share (EPS) rose 37%, reaching $1.95, surpassing analysts' expectations of $1.87.

Notably, Broadcoms AI semiconductor business outperformed with a 74% growth rate, significantly higher than the companys guidance of 66%. The company anticipates its AI semiconductor revenue will double year-over-year in the first quarter of FY2026.

Outlook for the Next Quarter

Looking ahead, Broadcom expects total revenue of $19.1 billion in Q1 FY2026, marking a 28% growth compared to the same quarter last year. Additionally, the companys Infrastructure Software segment, which includes VMware, posted a 19% increase in sales, signaling continued growth despite some client concerns.

Strategic Partnerships and New Customers

During its earnings call, Broadcom also revealed updates on its partnerships and customer base. The company confirmed that its collaboration with Alphabet (Googles parent company) on tensor processing units (TPUs) is expanding. Broadcom highlighted that Apple is now among the external companies utilizing TPUs, indicating a significant opportunity for broader deployment of this technology.

Broadcom also announced the addition of a fifth customer for its custom AI chip, the XPU. This unnamed customer placed a $1 billion order, further diversifying Broadcom's portfolio of AI clients. However, the relatively smaller size of this deal compared to previous orders by other clients, such as Anthropic, may have disappointed some investors. Despite this, Broadcom expects further growth in these partnerships in the coming quarters.

AI Backlog and Margin Outlook

Broadcoms total AI backlog has surpassed $73 billion, with the company expecting a substantial portion of that to convert into revenue over the next 18 months. While some investors had anticipated a larger backlog, the company remains confident in its AI growth trajectory.

However, concerns over margins emerged as the company acknowledged that as AI products become a larger part of its revenue mix, margins would likely decline. This is in line with Broadcoms earlier statements that AI semiconductors generally carry lower margins. Despite this, Broadcoms leadership believes that the growth in AI products will more than offset any margin compression, leading to higher overall profits.

Broadcoms CFO, Kirsten Spears, noted that the companys operating margin would decline only modestly, and the company still expects double-digit growth in its Infrastructure Software segment, although at a slower pace than in FY2025.

Conclusion

Despite a mixed market reaction following its earnings report, Broadcoms business is advancing rapidly, with strong growth in its AI semiconductor segment and expanding customer base. The company's revised forecast for next quarter, with expected AI revenue growth of 100%, far exceeds earlier predictions of 60-70%. Overall, Broadcom continues to position itself for significant long-term growth, even though the market remains cautious in the short term.

Sources:

• Broadcom Slips Post-Earnings Even as AI Demand Goes Parabolic

Author: Grace Ellison
Grace Ellison is a journalist focusing on environmental issues and sustainability. She has experience publishing international reports and participating in documentary projects.