Broadcom Earnings Preview: AI Revenue May Nearly Double, But Strong Performance May Not Save the Stock Price

Broadcom will release its earnings after the market closes on Wednesday. Wall Street expects the company to report strong results, but media outlets note that based on recent trading trends, even if the company beats already high market expectations, it may not be enough to reverse the months-long downward trend in its stock price.

Broadcom's stock price has fallen 24% from its all-time high last December, significantly underperforming the S&P 500 index. This round of sell-off is part of a broader investor retreat from large tech stocks. The market worries whether the hundreds of billions of dollars invested by companies to develop AI capabilities can be sustained in the long term.

Broadcom is currently the seventh largest company by market capitalization in the S&P 500, with a market cap of about $1.5 trillion. The company is a chip partner for AI giants like Alphabet, so it also directly benefits from the recent AI investment boom.

AI Performance May Double; Focus on Order Backlog

Analysts believe that while these concerns may eventually materialize, for now, Broadcom's fundamentals still look solid.

Analysts expect the company's adjusted earnings per share for the first quarter of this fiscal year to rise 27% year over year, reaching $2.03; revenue is expected to grow 29% year over year, to about $19.3 billion. Among these, AI-related sales are expected to nearly double, reaching about $8.2 billion. If the company provides a positive outlook, Wall Street will not be surprised.

Paul Meeks, Head of Technology Research at Freedom Capital Markets, said:

"Broadcom will certainly deliver many positive messages. But the question is, that might not matter."

He cited Nvidia's stock performance after its earnings last week as an example. Nvidia reported results exceeding Wall Street expectations, and due to strong product demand and hyperscale cloud providers planning to increase capital spending, the company also raised its outlook. But within the two trading days following the report, Nvidia's stock still dropped 9.4%, marking its worst two-day performance since April.

After Broadcom released its previous report last December, its stock was also hit hard, falling more than 11% on the day—the biggest single-day drop in nearly a year. The issue at the time was that the company disclosed an AI product order backlog of $73 billion over the coming six quarters, a figure below market expectations.

Therefore, investors will naturally focus on whether Broadcom updates the AI product order backlog this time. In addition, the market will watch the progress of Broadcom's tensor processing unit (TPU) chips made for Google. Google's orders are expected to increase noticeably in the second half of the year. Meanwhile, Broadcom's cooperation with OpenAI may also drive business growth and continue through 2027.

Analysts: Broadcom Has a "Deep Moat"

Shaon Baqui, Senior Technology Research Analyst at Janus Henderson who holds Broadcom stock, said:

"A very important point for Broadcom is to emphasize their real strength in designing large custom chips."

"They have already developed seven generations of TPU chips for Google, with a very mature cooperation record. The ability to deliver new products generation after generation is key, especially when competing with Nvidia."

"Manufacturing these giant AI accelerator chips is very difficult. I think Broadcom needs to highlight that they actually have a fairly deep moat in this field."

Another issue in Broadcom's previous earnings was the profit margin. CEO Hock Tan stated that AI-related sales were weighing on the profit margin. The market expects Broadcom's adjusted gross margin for the first quarter of this fiscal year to be about 77%, lower than last quarter's 78%, and also below 79% from a year ago.

Analysts may also raise questions about the company's software business, which accounted for 42% of Broadcom's total revenue in 2025. In the past, this business was seen as an important segment to balance semiconductor business cycle fluctuations. However, recent declines in software stocks overall have pressured Broadcom's share price.

Meeks from Freedom Capital said:

"It will be interesting to see how they disclose the situation of this segment, including their guidance for the future."

"During the Q&A session of the earnings call, they will definitely be asked directly about the role of the software business in the company's overall strategy. In the past, this business was a good source of diversification, but in the AI era, now it's seen by the market as a heavy burden."

Stock Is Cheaper, but May Not Rebound

One result of the recent decline in share price is that Broadcom’s valuation has become cheaper. Even so, there could still be more downside. Broadcom's current forward P/E ratio is about 27x—although already below the peak of 42x last December, it is still significantly higher than its five-year average of 22x and competitor Nvidia’s roughly 21x.

Options traders expect Broadcom shares to experience significant volatility after the earnings report. Current pricing shows the stock could fluctuate around 7% up or down after the earnings release.

Kunjan Sobhani, a Bloomberg Industry Research Analyst, said there are three things that could drive the stock higher: announcing the addition of an important new hyperscale cloud customer, a major increase in AI order backlog over the same period, or CEO Hock Tan making positive comments about cooperation with OpenAI and Anthropic.

But given the recent pessimistic market reactions to tech earnings, even if these favorable factors occur, Broadcom's share price may not rebound significantly as a result. Sobhani said:

"It now seems that the better a company's results, the worse its share price performs. At least for this earnings season."

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