Broadcom’s Strong Earnings Fail to Impress a Demanding Market

Broadcom US11135F1012

Investor expectations for leading semiconductor and software firm Broadcom have reached such a lofty level that even a quarterly report surpassing forecasts was met with disappointment. The company's shares turned negative in pre-market trading Friday, a reaction underscoring how markets are now scrutinizing more than just top-line growth and headline numbers.

For its fiscal fourth quarter ended November 2, 2025, Broadcom posted revenue of $18.02 billion, a figure that comfortably exceeded analyst consensus estimates of approximately $17.5 billion. This represents a 28% year-over-year increase. Adjusted earnings per share came in at $1.95, also beating the expected range of $1.86 to $1.87.

The engine of this growth remains artificial intelligence. Revenue from AI chips surged 74% to $8.2 billion. Under generally accepted accounting principles (GAAP), net income nearly doubled, reaching $8.5 billion.

Initially, the market responded positively, with shares jumping about 4% after the release. However, the mood shifted during the subsequent analyst conference call, leading to a decline in pre-market activity on Friday.

The Details That Dampened Enthusiasm

During the call, CEO Hock Tan provided key strategic updates that tempered investor optimism. He confirmed that Anthropic is the previously unnamed "$10 billion customer." Furthermore, Broadcom secured a new $11 billion order from Anthropic, though this is scheduled for late 2026. A fifth major custom chip client was also added, placing an initial $1 billion order.

Management issued guidance for the current first quarter of fiscal 2026, projecting revenue of about $19.1 billion, which is above the market expectation of $18.3 billion.

Despite these robust signals, Tan introduced notes of caution. He indicated that the rapidly growing AI revenue currently carries lower profit margins compared to the company's traditional software business. Additionally, he pushed back the timeline for significant revenue contributions from the multi-billion dollar partnership with OpenAI to the 2027-2029 period, whereas investors had hoped for a faster impact in 2026.

Sector-Wide Pressures Add Context

The reaction to Broadcom's report cannot be viewed in isolation. Just hours before its release, Oracle's stock plunged 14.5% despite beating profit estimates, as the market criticized its heavy investments in AI infrastructure without immediate returns. This sector-wide nervousness spilled over to Broadcom, whose shares had already fallen roughly 3% in Thursday's regular session.

With a year-to-date gain of approximately 75%, Broadcom's valuation is demanding. The company's AI product backlog stands at $73 billion for the next 18 months, which Tan emphasized is a "minimum." However, markets are no longer automatically rewarding pure revenue growth narratives; immediate margin expansion and capital efficiency are now in greater focus.

In a show of long-term confidence, Broadcom's board raised its quarterly dividend to $0.65 per share, marking the 15th consecutive annual increase and signaling faith in the company's cash flow trajectory.

Path Forward and Analyst Focus

The key question is how the stock will perform during Friday's regular trading session. Closing at 346.40 euros on Thursday, Broadcom's fundamental growth story remains intact, reinforced by the strong current-quarter guidance. Nevertheless, the abrupt reversal in after-hours trading will likely force analysts to recalibrate their models. Their focus will now center on the evolving mix between lower-margin AI hardware sales and the more profitable legacy software business, and how this balance affects future profitability.