Broadcom's Blowout Quarter Just Made the Bears Look Foolish

Key Points

• After shares tanked following its December earnings report, Broadcom rebounded strongly in early March.
• The company’s AI semiconductor business more than doubled, and momentum is only increasing.
• Margin stability, clarity around Meta Platforms, and a big buyback authorization were among the positive developments in AVGO's report.

Chip giant Broadcom NASDAQ: AVGO popped 5% in after-hours trading upon releasing its latest earnings report.

The company’s December 2025 report led to significant trepidation among investors, with many concerned about the future of AVGO’s gross margin.

Not only did Broadcom perform very well in the latest quarter, but its expectations for this key metric also took a sharp turn in the right direction.

After a December disappointment, Broadcom’s Q1 2026 earnings provided investors with confidence-inspiring data in nearly every way.  

AVGO’s Q1 2026: Beats, Margin Stability, and Exploding AI Sales

Broadcom reported revenue of $19.3 billion, an increase of 29.5% year-over-year (YOY). This post moderately exceeded estimates of $19.1 billion, which called for growth of 28%. Adjusted earnings per share (EPS) saw an approximately 28.1% YOY increase, moving up to $2.05. This allowed Broadcom to slightly beat estimates of $2.03, or 26.9% growth.

Looking deeper into the numbers, Broadcom’s gross margin came in at a solid 77%. This was in line with the firm’s expectation that gross margin would come in 100 basis points lower than the 78% figure in fiscal Q4 2025. Given that expectations for gross margin deterioration were one of the biggest negatives of Broadcom’s last report, this post was encouraging.

Further down Broadcom’s income statement, the firm’s adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA) margin was 68%. This exceeded Broadcom’s guidance of 67%.

Broadcom’s artificial intelligence (AI) semiconductor division continued to grow rapidly, with sales rising by a whopping 106% to $8.4 billion. This surpassed Broadcom’s own estimate, making the firm’s gross margin outperformance look even better. As AI semiconductor sales have historically come with lower gross margins than the rest of the business, better-than-expected sales here would have intuitively led to gross margin underperformance. The fact that this was not the case means that Broadcom made a move that successfully protected gross margins in its AI division.

One downside of the report, however, was Broadcom’s infrastructure software segment, anchored by VMware. Sales grew by just 1% YOY, compared to posts of between 17% and 25% over the previous three quarters.

As for next quarter, Broadcom expects to generate revenue of $22 billion, implying 47% YOY growth. This handily beat estimates of $20.35 billion, which forecasted growth of only around 36% YOY. Broadcom also sees adjusted EBITDA margin holding at 68%, another positive sign. Furthermore, Broadcom expects its AI semiconductor momentum to accelerate, projecting revenue of $10.7 billion, or 140% YOY growth.

AVGO Pushes Back on META Worries, Reverses Course on Gross Margin

Notably, Broadcom threw cold water on claims that one of its key customers, Meta Platforms NASDAQ: META, was backtracking on its custom AI accelerator ambitions. CEO Hock Tan clearly stated, “Contrary to recent analyst reports, Meta's custom accelerator MTIA roadmap is alive and well. We're shipping now.” MTIA stands for Meta Training and Inference Accelerator, the name of its custom chip series co-developed with Broadcom. This should be a sign of relief to investors, indicating that Broadcom’s relationship with this top hyperscaler remains strong.

Broadcom also said it has gained another customer for AI XPUs (Broadcom’s name for custom AI accelerators), moving its total to six. This is yet another demonstration of Broadcom’s ability to successfully convert potential XPU customers into actual ones. Just one year ago, Broadcom had only three XPU customers.

Broadcom added clarification on its gross margin outlook going forward. After an analyst asked whether gross margin could fall 500 basis points, Tan said they were "hallucinating." Chief Financial Officer Kristen Spears added, “On further study, relative to even comments that I made last quarter, the impact relative to our overall mix is actually not going to be substantial at all. So I wouldn't worry about it.”

This exchange is a bit odd. In Q4 2025, Tan and Spears said that gross margins would deteriorate throughout the year as AI became a larger part of Broadcom’s mix. They seem to be backing away from that claim entirely now, and it is not clear what is causing this shift.

AVGO: The AI Enabler Showing No Signs of Slowing Down

While a company can seemingly always provide bigger beats, better guidance, and more encouraging commentary, Broadcom’s latest earnings report was highly impressive.

The results and guidance were strong, and Broadcom added another custom silicon buyer. The company reneged on its past statements regarding gross margin, now suggesting that AI growth won’t materially affect the metric.

While the out-of-the-blue nature of this change is confusing, as long as Broadcom’s future results align with it, that’s all that matters. The company likely wouldn’t shift this expectation unless it felt confident going forward, as doing so would only set it up to disappoint investors down the road.

To top it all off, Broadcom announced a $10 billion share buyback program. Given the weakness in the company’s share price despite its business being as strong as ever, Broadcom may see a significant opportunity in its stock at current levels. Considering the numerous positives in the company’s latest report, it’s hard not to agree.