Broadcom (AVGO) Tumbles 11% Amid AI Angst and Margin Guidance Concerns

On December 14, 2025, Broadcom (AVGO) experienced an 11.44% stock decline to $359.89, despite delivering Q4 2025 Non-GAAP EPS of $1.95 (beating estimates of $1.89) and revenue of $18.02B (surpassing $17.46B estimates) [5]. The sell-off occurred amid what investors termed “AI angst” [2], a sector-wide reassessment of AI infrastructure stocks’ profitability.

The primary catalyst was management’s guidance during the Q4 earnings call: a 100-basis-point sequential drop in consolidated gross margins for Q1 2026, explicitly linked to a higher mix of AI revenue [5]. Unlike Broadcom’s high-margin infrastructure software (93% gross margin) and non-AI semiconductors, AI semiconductor revenue carries lower margins, leading to dilution despite strong top-line AI growth (Q1 AI revenue guidance: $8.2B, 100% YoY) [5].

This aligns with Reddit discussions highlighting concerns about Broadcom’s elevated TTM PE ratio (75.77) relative to peers like NVIDIA (NVDA) at 43.44 [0][3], and the fading “AI exposure premium” as markets demand profitability over hype [2]. Trading volume spiked to 84.02M shares (well above the 23.08M average) [0], indicating widespread investor reaction. The decline also dragged down NVDA, which fell 3.23% during the same period [3], reflecting broader sector anxiety.

1. Profitability Focus Trumps AI Hype
   : The sell-off signals a market shift from valuing AI exposure alone to demanding tangible profitability. Investors are no longer willing to overlook margin pressures for high AI revenue growth [2][5].
2. Margin Dilution from AI Product Mix
   : Broadcom’s AI growth is driven by lower-margin semiconductors, not its high-margin software segment, creating a disconnect between top-line growth and profitability [5].
3. Valuation Discrepancy
   : Broadcom’s TTM PE ratio (75.77) is nearly double that of NVDA (43.44), exacerbating downward pressure as investors reassess valuations [0][3].
4. Sector-Wide Rerating
   : The decline in AVGO and NVDA suggests a broader re-rating of AI infrastructure plays, with investors cautious about margin sustainability amid heavy AI spending [2].

• Margin Compression Persistence
  : If AI revenue continues to dominate Broadcom’s product mix without margin improvement, sustained gross margin declines could further pressure valuations [5].
• Valuation Correction
  : The wide gap between AVGO’s PE and peer multiples increases the risk of a larger valuation correction if market sentiment remains bearish [0][3].
• Sector Contagion
  : Continued “AI angst” could spread to other AI supply chain stocks, leading to broader sector declines [2].

• Long-Term AI Backlog
  : Broadcom’s $73B AI backlog provides visibility into future revenue, which could support stock recovery if the company improves AI margin efficiency [5].
• Operating Leverage Potential
  : As AI production scales, Broadcom may leverage operating efficiencies to offset margin dilution, though this remains uncertain [5].

• Event
  : AVGO plummeted 11.44% on December 14, 2025, despite beating Q4 earnings and sales expectations [0][5].
• Catalyst
  : Q1 2026 guidance of 100-basis-point lower gross margins due to higher mix of lower-margin AI revenue [5].
• Market Context
  : “AI angst” driven by fading AI exposure premiums, with investors prioritizing profitability [2].
• Sector Impact
  : NVDA fell 3.23% in sympathy, indicating broader AI infrastructure sector concern [3].
• Key Metrics
  : AVGO TTM PE = 75.77, NVDA TTM PE = 43.44; AVGO Q1 AI revenue guidance = $8.2B (100% YoY) [0][3][5].