Broadcom reported a robust fiscal fourth‑quarter and issued guidance that topped analysts’ expectations. Yet the stock surrendered its early gains after the post‑earnings Q&A, where investors expressed concerns over the company’s long‑term relationship with key AI customers.
Revenue for the quarter ended Nov. 2 rose 28% year‑over‑year to $18.02 billion, beating the LSEG consensus of $17.49 billion. Adjusted earnings per share climbed 37% to $1.95, ahead of the $1.86 forecast, while adjusted EBITDA increased 34% to $12.22 billion, surpassing FactSet’s $11.61 billion estimate.
Why Broadcom Remains a Compelling Holding
Broadcom is a high‑quality semiconductor and software company led by veteran CEO Hock Tan. The firm is a clear beneficiary of the AI boom through its networking and custom‑chip (XPU) businesses. Its main competitors include Marvell Technology, Advanced Micro Devices and Nvidia.
Bottom Line
The quarter’s results were solid: both the Semiconductor Solutions and Infrastructure Software segments outperformed expectations, and the company’s adjusted operating‑income margin expanded by roughly 350 basis points. This margin expansion helped deliver the strong earnings growth that exceeded market forecasts.
Guidance for the upcoming fiscal Q1 (ending Feb. 1) also beat the Street, reinforcing a positive outlook for 2026. Nevertheless, a specific comment in the Q&A raised questions about the durability of Broadcom’s partnership with Alphabet’s Google and the potential for AI‑chip customers to develop in‑house solutions.
Key Developments from the Earnings Call
- Anthropic Order Confirmation – Tan verified that Anthropic placed a $10 billion order for Broadcom’s Ironwood XPUs, the seventh‑generation TPUs used to train Google’s Gemini 3. Anthropic subsequently added an $11 billion order for delivery in late 2026.
- New XPU Customer – Broadcom secured an initial $1 billion order from an unnamed fifth XPU client, also slated for 2026 delivery.
- Back‑Half Margin Pressure – CFO Kirsten Spears warned that as more systems ship in the second half of fiscal 2026, a larger share of components will be sourced from third parties, potentially compressing gross margins.
Investor Concerns Over In‑House Chip Development
The first question in the Q&A focused on whether XPU customers might increasingly design their own accelerators, reducing reliance on Broadcom’s custom silicon. Tan responded that while customers could theoretically move in‑house, the rapid evolution of silicon technology and the relentless advancement of merchant GPUs—particularly those from Nvidia—make it unlikely that large‑language‑model (LLM) players will abandon custom solutions entirely.
Tan’s remarks were perceived by some investors as overly dismissive, leading to a 4.5% decline in after‑hours trading despite the strong earnings beat. The market appears wary of a scenario where key AI customers internalize chip design, which could pressure future revenues and margins.
Segment Performance Detail
Semiconductor Solutions
Revenue in this segment surged 34.5% YoY to $11.07 billion, beating the $10.77 billion estimate. AI‑related semiconductor sales jumped 74% YoY to $6.5 billion, exceeding the $6.22 billion previously guided. Broadcom’s AI networking portfolio remains strong, with a backlog of AI switches topping $10 billion and a total AI‑related backlog (including XPUs) exceeding $73 billion. The company expects to convert roughly $8.2 billion of that backlog into revenue in fiscal Q1.
The legacy semiconductor sub‑unit reported $4.6 billion in revenue, a modest 2% YoY increase driven by seasonal wireless demand, notably the launch of the iPhone 17. Broadband revenue continues to recover, while enterprise segments remain under pressure.
Infrastructure Software
Revenue grew 19% YoY to $6.9 billion, surpassing the $6.72 billion consensus. Total contract value booked in Q4 topped $10.4 billion, up from $8.2 billion a year earlier, pushing the software backlog to $73 billion from $49 billion.
Guidance Outlook
- Fiscal Q1 Revenue – Projected at $19.1 billion, ahead of the $18.27 billion LSEG consensus.
- AI Semiconductor Revenue – Expected to double YoY to $8.2 billion, driven by custom AI accelerators and Ethernet AI switches.
- Semiconductor Solutions Segment – Forecast at $12.3 billion, comfortably above the $11.53 billion estimate.
- Infrastructure Software – Guided to $6.8 billion, slightly below the $7.14 billion consensus.
- Adjusted EBITDA – Anticipated at $12.78 billion, representing a 67% margin, exceeding the 66% consensus.
Market Reaction and Outlook
Broadcom’s share price is up roughly 75% year‑to‑date, trading near all‑time highs. The modest post‑earnings dip appears to reflect profit‑taking and lingering uncertainty about future margin compression rather than any fundamental weakness.
Given the company’s strong order backlog, expanding AI demand, and resilient operating margins, we maintain a “Hold” rating on Broadcom stock. Our price target has been raised to $425 per share from $415, reflecting the upside potential if the current sell‑off proves temporary.
Strategic Takeaways
Broadcom is well positioned to capitalize on the accelerated adoption of AI workloads across data centers. Its XPU strategy, coupled with a deep networking portfolio, creates a defensible moat that is difficult for customers to replicate in‑house without substantial R&D spend. Even if gross margins modestly compress in the second half of fiscal 2026, the sheer scale of revenue growth should sustain earnings momentum.
Investors should monitor two key variables going forward: (1) the pace at which AI customers diversify their silicon supply chains, and (2) the impact of third‑party component pass‑through costs on gross margins. Absent a material shift toward in‑house chip development, Broadcom’s growth trajectory remains compelling.
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