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Broadcom (AVGO) shares have dropped over 17% in just three trading days, despite reporting fourth-quarter profits that exceeded expectations. Investors seem more concerned about pressure on gross margins related to the surge in AI revenues.
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In the fourth quarter, Broadcom’s revenue from its AI segment reached $6.5 billion, marking a 74% increase compared to the same time last year. The company has secured a major contract for custom chips with Google and Meta Platforms.
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Despite the downturn, analysts hold a Strong Buy rating, with an average target price of $455—indicating about a 33% upside. Broadcom’s PEG ratio is 0.69, which aligns with an expected 36% growth rate in long-term earnings per share.
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Broadcom (NASDAQ:AVGO) experienced significant growth in 2025, with its stock rising approximately 46% since the start of the year, largely due to demand for AI-related semiconductors and specialized chips. Last week, it even reached an all-time high of $414.61.
However, after announcing its fourth-quarter results, the stock suddenly fell. Just a day after surpassing expectations for earnings and sales, its price dropped by more than 11%. This was largely attributed to concerns regarding reduced profit margins stemming from a higher share of sales attributed to AI. The decline continued, dropping an additional 5.6% yesterday, bringing the total loss over three days to more than 17%. It’s trending lower again in premarket trading this morning.
Concerns about AI investments impacting profitability have also affected other stocks in the sector recently. Yet, Broadcom had managed to stay relatively stable until this dip, maintaining a flat trajectory compared to the previous month.
The pressing question for investors now is whether this significant drop indicates a further decline or represents a buying opportunity for companies with strong long-term prospects in AI.
Broadcom’s success in 2025 is largely credited to explosive growth in its AI semiconductor sector. In the latest quarter, AI revenue rose 74% year-over-year, reaching $6.5 billion, driven by demand for tailored AI processors and network solutions from major players like Google and Meta, plus others.
The chipmaker secured vital contracts for custom chips, contributing positively to revenue growth this quarter. Their Infrastructure Software division, bolstered by the acquisition of VMware in 2023, benefited greatly from recurring subscription revenue.
These elements have powered the stock’s rise this year, surpassing many competitors and solidifying Broadcom’s status as a leading player in the AI infrastructure boom.
