Broadcom Stock Falls on AI Margin Concerns

Broadcom stock dropped after the company’s Dec. 12, 2025, fiscal Q4 report warned that an expanding AI-hardware mix is compressing gross margins, even as management highlighted strong AI revenue and a large AI-switch and product backlog.

Q4 Results and Backlog

Broadcom Inc. (NASDAQ: AVGO) reported fiscal Q4 2025 results that showed AI semiconductor revenue of $6.5 billion, a 74% year-over-year increase. The company disclosed a total product and order backlog of $162 billion, expected to be delivered over the next 18 months. Within that, the AI networking switch backlog exceeds $10 billion.

For fiscal Q1 2026, management guided AI semiconductor revenue to $8.2 billion, implying triple-digit year-over-year growth. The company’s overall gross margin guidance implies about 100 basis points of sequential compression, which management attributed mainly to a mix shift toward lower-margin AI accelerators and custom XPUs. This margin pressure has been affecting consolidated results since Q4 fiscal 2024.

Market Reaction and Analyst Views

Shares closed at $339.81 on Dec. 15, 2025, down about 5.6% on volume of roughly 64.6 million shares, more than double the three-month average. The decline reflected broader weakness in AI-exposed stocks as investors focused on AI margins, which remain below Broadcom’s corporate average.

Analysts noted concerns that some large cloud customers may increase in-house chip design, potentially reducing Broadcom’s long-term custom silicon opportunities and pricing power. However, several characterized the selloff as a possible overreaction given the strong AI growth and sizable backlog, which provide meaningful near-term revenue visibility and support a constructive long-term outlook.