After Broadcom (AVGO) posted widely expected strong results last week, shares slumped. The stock closed at $359.93 last week, a price zone that formed since early September.
Even after AVGO stock fell, the P/E of 75.6 times heightened risks. The firm had no room to post any questionably weak results. In Q4, it earned $1.95 (non-GAAP EPS) on revenue of $18.02 billion (+28.2% Y/Y). To reward its shareholders, Broadcom increased its dividend by 10%.
CEO Hok Tan said that AI semiconductor revenue increased by 74% in Q4, contributing to its quarterly revenue. In the quarter ahead, AI accelerators and Ethernet AI switches will result in double-digit percentage growth for semiconductor revenue.
Technology investors would want to keep their core holdings in Broadcom, Nvidia (NVDA), Micron (MU), Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL). However, recent investors might not want to bet on a near-term bounce.
Management potentially “sandbagged” its outlook by issuing too conservative a prediction. Still, fluctuations in demand from Google and Anthropic for AI chips might hurt results.
Profitability might weaken if cloud customers slow their purchases. Eventually, the growth rate of LLM training will slow. Also, if subscriptions for chatbots do not grow, customers will order fewer chips in 2027.
Your Takeaway
The AI business in 2026 remains strong. Growth rates in 2027 might slow down, which markets need to price in now to manage their expectations.
