Broadcom beats on revenue and profit, but the stock sinks. I have the numbers, the context, and why investors hit the sell button. The print was strong. The message around margins and timing was not.
What just happened
Broadcom posted a powerful fiscal fourth quarter and raised its outlook. Then the stock dropped hard after hours, falling roughly 8 to 11 percent. The reason is simple. The AI boom is real, but the profits from it are getting tighter, and the cash from a massive backlog will take time to show up.
Here are the headline numbers I am seeing:
- Q4 revenue came in at 18.02 billion dollars, up about 28 percent year over year
- Adjusted EPS landed at 1.95 dollars, ahead of expectations
- Q1 revenue is guided to 19.1 billion dollars, above the Street
- AI chip revenue is set to double next quarter, to about 8.2 billion dollars
- The quarterly dividend rises about 10 percent, to 0.65 dollars, ex dividend on December 22, 2025
The market’s message
The beat was not the problem. The mix and the margin were. Management signaled lower gross profit per AI dollar, as custom silicon ramps and price steps sharpen competition. Investors also heard fuzzy timing on a roughly 73 billion dollar AI order backlog. That raised a red flag. Big orders are great, but cash flow depends on delivery slots, supply, and customer acceptance.
The move in after hours trading reflects that worry. A premium stock into an AI surge needs clean margin signals and tight execution. It did not get both tonight. That is why buyers stepped back.
AI revenue is exploding, but not every AI dollar is created equal. Margin quality now carries more weight than top line growth.
The deeper read on AI, chips, and software
Broadcom is building two engines. The first is AI infrastructure, from custom accelerators to high speed networking. That engine is in full throttle. The second is enterprise software, centered on VMware, which brings recurring subscription revenue and high renewal rates. That engine is steadier, with higher margins and lower cyclic risk.
This mix matters. AI hardware ramps are capital heavy, price sensitive, and can pressure gross margin at the start of big programs. VMware subscriptions help smooth that, but legal noise in Europe over the deal approval adds a small overhang. I do not see that as a near term cash flow threat, yet it can sap multiple expansion while the case plays out.
Backlog vs valuation
The 73 billion dollar AI backlog is a vote of confidence. It also invites a hard question. How fast can Broadcom turn that into recognized revenue and free cash flow. If timelines slide, the Street will haircut that backlog. Coming into today, the stock already carried a rich multiple after a huge run this year. A rich multiple plus new margin and timing uncertainty is the classic setup for a sharp reaction.
Watch three signals next: AI gross margin trajectory, order conversion to revenue, and software annual recurring revenue growth.
What this means for investors
This pullback is either the first chill in AI euphoria or a reset that opens a door. Which one it is will depend on execution over the next two quarters. The guide for Q1 is strong. The dividend bump shows confidence in cash generation. Networking attach to AI builds is a plus for blended margins. Yet, custom chip mix, foundry costs, and supply deals can cap near term profitability.
If you own the stock, the case now leans on patience. The backlog gives visibility, but only if deliveries hit schedule. If you are on the sidelines, this drop improves the risk reward, as long as you accept near term margin swings.
- Risks to note: tighter AI chip margins, backlog timing, regulatory friction, and a still premium valuation.
If AI unit margins keep slipping while revenue rises, earnings leverage will lag. The stock would then trade on proof, not promises.
Frequently Asked Questions
Q: Why did the stock fall after a clear beat?
A: Investors focused on lower AI profit margins and unclear delivery timing for a very large backlog. With a rich valuation, that was enough to spark selling.
Q: What does the 73 billion dollar AI backlog actually mean?
A: It signals strong demand for custom chips and networking. Revenue only arrives when Broadcom builds, ships, and customers accept units. Timing is the swing factor.
Q: How does VMware change Broadcom’s risk profile?
A: VMware adds recurring subscription revenue with higher margins. It reduces chip cycle volatility, but legal challenges in Europe could slow further integration steps.
Q: Is this a buying opportunity?
A: It can be for long term investors who believe in Broadcom’s execution. The near term will be bumpy if AI margins stay thin. Position size with that in mind.
Q: What should I watch next quarter?
A: AI gross margin progress, order conversion rates, VMware subscription growth, and any updates on the legal front in Europe.
Broadcom just proved demand is not the issue. Profit quality and delivery cadence are. If management tightens the margin story and converts backlog on schedule, tonight’s drop will look like a gift. If not, the market will keep pricing in more time and more risk.
