Broadcom's AI Revenue Surge Meets a Margin Wall as the Stock Tumbles 23%

Despite record $35B AI infrastructure bet and revenue beat, Broadcom shares fall 23% from peak as adjusted gross margin slips to 77% amid custom ASIC shift.

The semiconductor giant delivered eye-popping AI chip sales growth in its latest quarter, yet the market punished shares severely—a disconnect that has erased roughly $280 billion in market value since early June. Broadcom's adjusted gross margin slipped to 77%, dragged down by a rising mix of custom ASICs that yield thinner profits than standard silicon, a shift analysts are calling a margin trap.

The Numbers That Shook the Market

Revenue climbed 48% year over year to $22.19 billion, powered by a 143% explosion in AI chip sales. On paper, that should have been a victory lap. Instead, the stock suffered a 12.6% single-day rout immediately following the report, and the selling has not let up. Shares fell another 3.86% on Tuesday to €330.40, leaving the stock more than 23% below its record high set just weeks earlier. The trigger was a forward outlook that failed to meet the loftiest expectations for AI chip revenue, even though earnings beat estimates.

A separate account put the initial decline at roughly 17% and the loss from the peak at around 20%, depending on the measurement date, but the broader picture is consistent: investors are questioning the profitability of Broadcom's ballooning AI business.

A Record Bet on AI Infrastructure

Management is fighting back not with words but with capital. Broadcom unveiled the "AI XPV Platform," a massive infrastructure venture targeting more than 20 gigawatts of computing capacity for leading AI labs by 2028. Initial anchor investors Apollo and Blackstone are leading a consortium that has already committed $35 billion in the first tranche. The money will be deployed directly into Anthropic's infrastructure build-out, with first installations expected to go live in mid-2026. An Apollo partner called the deal the largest private financing in history.

CEO Hock Tan is keeping his foot on the accelerator. For the current quarter, he is guiding for AI revenue to exceed $16 billion, more than triple the year-ago level, while total revenue is seen reaching $29.4 billion. By fiscal 2027, Broadcom expects cumulative AI-related revenue to top $100 billion, backed by a record order book that recently added a new customer placing a $10 billion chip order and an extended partnership with Meta.

Insider Selling, Analyst Faith, and Shareholder Rewards

While the market frets, executives have been trimming their positions. Over the past 90 days, insider sales outpaced purchases by a net $17 million. Mark Brazeal offloaded 8,000 shares, while Harry You picked up a smaller block on the other side.

Wall Street, however, remains broadly optimistic. Of 45 analysts covering the stock, 44 rate it a buy; none recommend selling. JPMorgan recently lifted its price target to $580, dismissing rumors of delays in the Google collaboration. The average price target stands at roughly €490.

Meanwhile, Broadcom continues to return capital to shareholders. The quarterly dividend was raised 10% to $0.65 per share, payable in late June, and a $10 billion share buyback program remains in effect.

The Margin Dilemma Ahead

The stock's slide fits a wider tech sell-off driven by growing unease about the returns on massive AI investments. Broadcom's shift toward custom chips—while strategically sound for locking in hyperscaler customers—is squeezing short-term profitability. The company's trajectory hinges on whether it can scale these lower-margin products fast enough to offset the drag, and whether the booming order book will translate into the kind of earnings power the market demands.

Historically, Broadcom's shares have recovered well from such one-day routs, with a median gain of 35% six months after similar shocks. But replicating that pattern will require the company to deliver on its ambitious August guidance.