Broadcom (AVGO.US) is scheduled to release its latest quarterly results early Thursday, Beijing time. Wall Street anticipates the company will report robust earnings; however, based on recent trading patterns, even exceeding these high expectations may not be sufficient to reverse the stock's multi-month decline. The chipmaker's share price has fallen 24% from its record high last December, significantly underperforming the S&P 500 index. This sell-off is part of a broader trend where investors are offloading shares of major tech companies due to concerns about the sustainability of trillions of dollars in artificial intelligence research and development investments.
As the seventh-largest company by market capitalization in the S&P 500, with a valuation of $1.5 trillion, Broadcom is a chip manufacturing partner for Alphabet (GOOGL.US) and other AI giants, positioning it as a beneficiary of these massive investments. While these concerns may materialize in the future, Broadcom currently appears to be in a solid position. Analysts project the company's adjusted earnings per share for the first fiscal quarter to increase 27% year-over-year to $2.03, with revenue growing 29% to approximately $19.3 billion. AI-related sales are expected to nearly double, reaching around $8.2 billion. It would not surprise Wall Street professionals if the company also provides encouraging future guidance.
"Broadcom will certainly have a lot to say, but it might not matter," commented Paul Meeks, Head of Technology Research at Freedom Capital Markets. Reflecting on Nvidia's (NVDA.US) stock performance following its earnings report last week: the chip giant surpassed Wall Street's expectations and raised its guidance, citing strong product demand and massive capital expenditure plans from hyperscale data center operators. Nonetheless, Nvidia's stock plummeted 9.4% over the next two trading sessions, marking its largest two-day decline since April. Similarly, Broadcom's shares fell sharply after its December earnings report, dropping over 11% for their worst performance in nearly a year, driven by concerns about its AI product order backlog.
A key issue is the future trajectory of its AI product order backlog, which stood at $73 billion for the next six quarters but was lower than anticipated. Investors are keen for updates on this backlog and the progress of Broadcom's Tensor Processing Unit (TPU) chips produced for Google. Orders from Google are expected to increase substantially in the second half of this year. A partnership with OpenAI is also projected to contribute to Broadcom's business expansion by 2027.
The potential breakthrough lies in Broadcom's "deep moat." Shaon Baqui, Senior Technology Research Analyst at Janus Henderson, an investor in Broadcom, stated, "It is crucial for them to emphasize their genuine expertise in designing large, custom chips, evidenced by their successful track record of seven generations of TPUs with Google. This generational capability is extremely important, especially when competing with Nvidia." He added, "Manufacturing these massive AI accelerator chips is genuinely difficult. I believe Broadcom should highlight their very strong competitive advantage in this field."
Another concern highlighted in Broadcom's previous earnings report is its profit margins. CEO Hock Tan noted that sales from the AI business were weighing on margins. The adjusted gross margin for the first fiscal quarter is forecast at approximately 77%, down from 78% last quarter and 79% a year ago. Analysts may also question the company's software business, which accounted for 42% of its total revenue in 2025. Once viewed as a way to balance the cyclical nature of semiconductor sales, recent sell-offs in software stocks have pressured Broadcom's share price.
"It will be interesting to see how they report on and guide for this specific segment," said Freedom Capital's Meeks. "They clearly need to address questions directly during the Q&A session about how they view this part of the business, which was once a key source of diversification but is now seen as a significant burden in the AI era."
The recent sell-off has indeed made Broadcom's stock cheaper. However, there may still be room for further decline. Broadcom currently trades at a price-to-earnings ratio of about 27 times. While this is lower than its peak of 42 times last December, it remains well above its five-year average of 22 times. Furthermore, Broadcom's P/E ratio is higher than competitor Nvidia's 21 times. Options traders are betting on significant volatility post-earnings, anticipating a potential price move of around 7% up or down.
Analysis suggests three potential catalysts could boost the stock: announcing significant new hyperscale customers, a substantial increase in the AI order backlog, and positive commentary from CEO Hock Tan regarding deals with OpenAI and Anthropic. Yet, given the market's recent pessimistic reaction to strong tech earnings, even these positive developments might not be enough to trigger a rally in Broadcom's share price. As one analyst noted, "It seems the better the earnings, the worse the stock performs. At least for this earnings season."