Broadcom Slips Post-Earnings Even as AI Demand Goes Parabolic

Key Points

• Broadcom showed that the company is firing on all cylinders in its latest earnings release.
• However, amid high expectations, Broadcom saw its share price swing from solidly positive to solidly negative in after-hours trading.
• Broadcom expects AI semiconductor revenue to double next quarter, a significant increase over prior expectations.

After delivering a total return of over 70% in 2025, semiconductor giant Broadcom NASDAQ: AVGO released its latest earnings on Dec. 11. Despite posting impressive results, Broadcom shares whipsawed in after-hours trading.

Shares rose more than 3% immediately after the company released its Q4 fiscal year 2025 (FY2025) report. However, after the earnings call ended, the stock was down over 4%. Note that Broadcom’s fiscal period is about one quarter ahead of the calendar period.

The company’s latest earnings and management commentary offer fresh insight into Broadcom’s positioning. The outlook remains positive, supported by accelerating AI momentum and a growing base of new customers.

Broadcom’s Headline Numbers Impress

In its Q4 FY2025, Broadcom posted revenue of approximately $18.02 billion, achieving a growth rate of 28%. This solidly beat expectations of $17.46 billion, or 24% growth. Adjusted earnings per share (EPS) rose by 37% to $1.95. This also beat expectations of $1.87, or 32% growth, by a considerable margin.

Importantly, growth in the company’s artificial intelligence (AI) semiconductor business came in strong at 74%, which significantly exceeded Broadcom’s guidance of 66% growth. Even more impressive was the fact that the company expects AI semiconductor revenue to double year-over-year in Q1 FY2026.

The company expects total revenue of $19.1 billion next quarter, representing 28% growth—substantially higher than anticipated. Broadcom’s Infrastructure Software segment, which houses VMware, also continued to grow nicely. Sales rose by 19%, an acceleration from 17% a quarter ago. This is a very good sign, showing that Broadcom continues to grow VMware despite some clients expressing frustration.

Broadcom Adds XPU Fifth Customer, Sheds Light on Google, Anthropic

Broadcom provided a variety of interesting information during its earnings call. First off, the company directly addressed the tensor processing units (TPUs) it develops with Google parent company Alphabet NASDAQ: GOOGL. Broadcom further substantiated the idea that while Google uses TPUs internally, it is also making TPUs available to external customers. CEO Hock Tan noted that Apple NASDAQ: AAPL is one of those external companies that has used TPUs. He said that the scale at which Broadcom sees external TPU deployment “could be significant."

Tan also confirmed that the fourth custom chip (XPU) customer it added last quarter was Anthropic. After placing an initial $10 billion order, Anthropic more than doubled its commitment in Q4, placing an additional $11 billion order with Broadcom.

Furthermore, Tan stated that Broadcom has added a fifth, unnamed XPU customer, which has placed a $1 billion order. It's possible that the relatively small size of this deal disappointed investors. However, as shown by Anthropic’s second order, the commitment from this new customer could grow substantially over the coming quarters. When it comes to AI networking chips, Broadcom’s Tomahawk 6 switch is seeing rabid demand. The company has a $10 billion backlog in AI switches.

AI Backlog and Margins Outlook Weigh on AVGO Shares

The company’s total AI backlog now exceeds $73 billion, which it expects to turn into revenue over the next 18 months. This figure was likely not as high as some investors were hoping, leading to the stock’s post-earnings decline. However, Tan stressed that the company expects many more orders to come in over the next 18 months. This implies that actual AI revenue over that time could be much higher.

The company’s statements on gross and operating margins also may have disappointed investors. These will fall over time as AI semiconductors become a larger part of total revenue. Still, this should not come as a surprise, as Broadcom has previously said that AI products are lower margin. The massive growth in these products should more than make up for margin compression, leading to higher total profits. Chief Financial Officer Kirsten Spears implied that the impact on margins will not be huge, saying that operating margin would “come down a bit."

The company also sees Infrastructure Software growth slowing to a low double-digit range in FY2026. Given that Infrastructure Software grew by 26% in FY2025, this could be another aspect of Broadcom’s outlook that markets were not fond of.

Overall, Broadcom is adding new XPU customers and generating more revenue from existing ones. The 100% AI semiconductor growth rate the company sees next quarter is also much higher than the expectations of 60% to 70% it set previously. Despite the market’s negative reaction to the firm’s results, Broadcom's business is chugging along full steam ahead, creating a strong outlook for the stock.