Why Broadcom Stock Is Down Despite Beat-And-Raise Report
Skittish investors sold off Broadcom (AVGO) stock on Friday even though the fabless chipmaker and infrastructure software provider comfortably beat estimates with its fiscal fourth-quarter results and guidance.
Broadcom late Thursday said it earned an adjusted $1.95 a share on sales of $18.02 billion in the quarter ended Nov. 2. On a year-over-year basis, Broadcom's earnings increased 37% as sales rose 28%. Surging sales of custom processors for artificial intelligence data centers as well as related networking chips drove the outperformance.
For the current quarter ending Feb. 1, Broadcom forecast revenue of $19.1 billion, up 28% from the same quarter last year. Wall Street had been modeling $18.38 billion in sales for the fiscal first quarter.
Broadcom stock initially jumped after its report late Thursday but retreated when the company forecast a dip in profit margins and cited a lower-than-expected AI backlog.
On the stock market today, Broadcom stock plunged 11.4% to close at 359.93. It ended the regular session just below its 50-day moving average line, a key support level.
Still, at least 19 analysts raised their price targets on Broadcom stock after the fiscal Q4 report.
In fiscal Q4, Broadcom's AI chip sales soared 74% year over year to $6.5 billion. It guided to AI chip sales of $8.2 billion in fiscal Q1, up 100% from the year-earlier period.
Broadcom Announces Fifth AI Chip Buyer
Broadcom's current AI chip customers include Alphabet's (GOOGL) Google, Facebook parent Meta Platforms (META), TikTok parent ByteDance and AI startup Anthropic.
It also has an unidentified fifth AI chip customer. Various analysts speculated that this could be Amazon.com's (AMZN) Amazon Web Services, Apple (AAPL), SoftBank or xAI. Plus, Broadcom is working with OpenAI, but hasn't booked any business yet from that partnership.
Broadcom reported an AI backlog of $73 billion to be recognized over the next 18 months. Custom AI chips account for more than $50 billion of that backlog. Networking products make up the remainder.
On a conference call with analysts, Broadcom Chief Executive Hock Tan explained that the company's $73 billion AI backlog is a baseline for the next six quarters.
"We fully expect more bookings to come in over that period of time," he said. "So don't take that $73 billion as that's the revenue we ship over the next 18 months. We're just saying we have that now."
Tan said that is the "minimum revenue" from AI business it expects over the next six quarters. "It's a moving target," he said. "But it will grow. And it's hard for me to pinpoint what 2026 is going to look like precisely."
Wall Street Debates AI Backlog
TD Cowen analyst Joshua Buchalter kept his buy rating on Broadcom stock and raised his price target to 450 from 405.
"Strong results/guide, as expected, but once again the story becomes unpacking commentary," he said in a client note.
Many investors likely expected the AI backlog figure to be larger, given Broadcom's publicly announced agreement with OpenAI, Buchalter said.
"We think the backlog number represents firm orders (and) because the OpenAI project is still in development, Broadcom is not including it for now," he said.
Jefferies analyst Blayne Curtis maintained his buy rating on Broadcom stock and upped his price target to 500 from 480.
Curtis noted some investor concern that Broadcom's AI backlog did not signal enough upside for 2026.
"There is also a bit of a transition here in terms of messaging," Curtis said in a client note. Broadcom previously provided "more color on the out years" when the near term was strong. "But now that AI is ramping, the guide was more focused on the quarter ahead," he said.
Investor Concerns Unwarranted, Analyst Says
BofA Securities analyst Vivek Arya reiterated his buy rating on Broadcom stock and increased his price target to 500 from 460.
Bull-case expectations were for over $80 billion in AI backlog vs. the $73 billion that Broadcom noted, Arya said. But concerns about its backlog are undue given management's commentary that it is a baseline.
"Management commentary suggests $50 billion/$100 billion in AI sales is possible in FY26/27, in-line with bull-case pre call," Arya said.
Another investor concern after Broadcom's fiscal Q4 report centers on gross margins.
Broadcom's gross profit margin was 77.9% of revenue in fiscal Q4. The company forecast 76.9% for the current fiscal Q1.
"We expect Q1 consolidated gross margin to be down approximately 100 basis points sequentially, primarily reflecting a higher mix of AI revenue," Broadcom Chief Financial Officer Kirsten Spears said on a conference call with analysts.
AI business has a lower gross margin than the rest of the company's business, CEO Tan acknowledged. But the higher sales growth rate will create operating leverage for the company, he said.
Broadcom Stock Decline Is Puzzling
Bernstein analyst Stacy Rasgon said the Broadcom stock decline after the Q4 report is a head-scratcher.
"It seems that AI stock angst is continuing with Broadcom's shares trading down," Rasgon said in a report. "Frankly we aren't sure what else one could desire as the company's AI story continues to not only overdeliver but is doing it at an accelerating rate."
Rasgon reiterated his outperform rating on Broadcom stock and upped his price target to 475 from 400.
Broadcom stock is on two IBD lists: Big Cap 20 and Tech Leaders.
Follow Patrick Seitz on X at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
YOU MAY ALSO LIKE:
Can Semtech Notch A New Record With Its 'Nichey, Difficult-To-Do Technologies'?
Nvidia Partner Synopsys Beats Q4 Views But Gives Mixed Outlook
Discover Profitable Trades Each Day With MarketDiem. See How.
Find Winning Stocks With MarketSurge Pattern Recognition & Custom Screens
