no extra.Jim Cramer Recommends Buying Broadcom After Its Sharp Drop – Here’s Why

Broadcom (AVGO) saw its shares tumble nearly 11 percent on Friday after what should have been a celebratory earnings release. The semiconductor giant posted a robust fourth‑quarter beat and lifted its full‑year guidance, yet the market reaction was muted, driven by a mix of investor caution and misinterpreted commentary on the earnings call.

“This company is on fire,” said a prominent market commentator on “Squawk on the Street,” pointing to Broadcom’s growing roster of marquee customers – Alphabet, Meta Platforms, ByteDance‑owned TikTok, and AI pioneer Anthropic. The chip designer’s custom silicon is now a backbone for some of the most data‑intensive workloads in the world, from AI model training to real‑time inference.

Despite the strong fundamentals, the stock’s decline was sparked by two main concerns raised during the call. First, Broadcom’s partnership with Google’s parent Alphabet on the Gemini‑3 AI model left some investors uneasy. When asked whether Broadcom’s customers might eventually design their own in‑house chips, CEO Hock Tan stopped short of a categorical dismissal, suggesting that a shift toward bespoke silicon is a plausible scenario. That ambivalence fed a narrative that Broadcom’s long‑term “moat” could erode if hyperscalers decide to bring chip design fully in‑house.

Second, CFO Kirsten Spears warned that gross margins would dip in the second half of the year as the company ships more “systems” that contain third‑party components. “We’ll be passing through more components that are not ours, which will lower gross margins,” she said.

Both points sparked a wave of speculation, but deeper analysis suggests the concerns may be overblown. Even if margins compress, the sheer scale of Broadnet’s addressable market – estimated at over $200 billion in AI‑enabled infrastructure – provides ample runway for revenue growth. Moreover, Broadcom’s expertise in high‑performance interconnects, networking ASICs, and security silicon gives it a differentiated value proposition that few rivals can match.

From a technical standpoint, Broadcom’s custom silicon is designed to excel in two critical AI workloads: massive matrix multiplications for training and ultra‑low latency inference for edge deployments. The company’s recent collaboration with Alphabet on Gemini‑3 demonstrates an ability to co‑engineer chips that meet the strict power‑efficiency and performance targets of large‑scale transformer models. As AI workloads continue to proliferate across cloud, edge, and enterprise environments, Broadcom’s platform flexibility could translate into long‑term, multi‑year contracts – a revenue stream that is less volatile than one‑off chip sales.

On the valuation front, the stock closed at a record $413 per share on Wednesday, already flirting with the previous price target of $425. The modest dip below that level presents a potential entry point for investors who can tolerate short‑term volatility. A lower gross‑margin outlook does not necessarily signal a deterioration in cash flow; Broadcom’s massive free‑cash‑flow conversion, bolstered by a robust recurring revenue base in networking and storage, remains a key defensive metric.

In summary, the post‑earnings sell‑off appears to be more about market psychology than a fundamental shift in Broadcom’s trajectory. The company’s deep relationships with AI‑centric customers, its expanding product portfolio, and its disciplined capital allocation strategy position it well to capitalize on the AI boom. For investors seeking exposure to the AI hardware value chain, Broadcom’s current price dip could represent a strategic buying opportunity.