Here’s why Broadcom stock fell 4% after rising due to better-than-expected earnings

Shares of AI chip maker Broadcom fell 4% after market hours on Dec. 11 on concerns about a backlog of AI product orders, shrinking profit margins and no revenue forecast for 2026, Bloomberg reported.

Broadcom Inc. It competes with Nvidia for a share of the market for artificial intelligence chips and rose earlier in the day as earnings beat investor expectations.

Why did Broadcom shares fall?

According to the report, Broadcom’s shares lost nearly 4% on Dec. 11, despite rising earlier in the day, after investors were “uneasy” with CEO Hock Tan’s responses during an analyst call.

Investors worried about AI product backlog

The chipmaker has a “minimum” $73 billion worth of AI product orders lined up to ship over the next six quarters, according to Tan. He explained: “We expect a lot more as more orders come in for shipments over the next six quarters. So our lead time could be anywhere from six months to a year depending on the product in question.”

However, the number and timeline disappointed some investors, according to the report.

Profit margins are tight, no forecast for 2026

Stating that the company received orders worth $11 billion in the 4th quarter from Claude AI manufacturer and OpenAI rival Anthropic PBC, Tan also warned that the company’s total profit margins would shrink due to AI product sales.

The company also did not share a revenue forecast for 2026, causing uneasiness and increased disappointment. Tan tried to explain it as a “moving target”, saying: “It is difficult for me to determine exactly what 26 will look like. So I would prefer not to give you any guidance.”

Broadcom’s profits beat analyst forecasts

• The company noted that earnings earlier the same day were generally optimistic, with the company reporting sales of close to $19.1 billion in the first quarter of the fiscal year ending Feb. 1.
• Analysts on average were predicting $18.5 billion, according to data compiled by Bloomberg. The company also increased its quarterly dividend by 10% to 65 cents per share.
• Broadcom shares have soared this year as investors bet the company will be a major beneficiary of AI spending. In this environment, the company had difficulty meeting expectations.
• An $11 billion Anthropic order in the fourth quarter followed a $10 billion deal in the third quarter, he said. Broadcom also signed another customer order worth $1 billion, Tan said, without identifying the customer.
• Broadcom has benefited from demand for its specialized chips as part of a massive data center buildout, making it a growing part of an industry dominated by Nvidia.
• AI semiconductor revenue will double to $8.2 billion in the first quarter compared to the previous year, Tan said.

About Broadcom

Much of the recent buzz around Broadcom stems from its ties to some of the largest AI model providers. ChatGPT maker OpenAI has signed a deal with Broadcom for its own AI chip designs. In another transaction, Anthropic agreed to use tens of billions of dollars worth of computing services based on Alphabet Inc.’s Google Cloud TPUs. The latter components also rely on Broadcom designs, helping fuel investor excitement about the chipmaker’s AI prospects.

Broadcom shares previously closed at $406.37 in New York and are up 75% this year.

The Palo Alto, California-based company has a broad product line that includes communications chips, networking components and software.

Broadcom is updating its network hardware to move data faster within and between data centers as part of its bid to generate more revenue from artificial intelligence. As AI models become more complex, the ability to connect chips, server racks, and entire buildings becomes more critical.

Broadcom reported sales of $18 billion in the fiscal fourth quarter that ended Nov. 2. Earnings rose to $1.95 per share, excluding some items. Analysts were forecasting revenue of $17.5 billion and profit of $1.87 per share.

As part of Broadcom’s OpenAI deal announced in October, the ChatGPT maker will use custom chips and networking components to help power AI services.

The deal will bring additional revenue to Broadcom’s specialty chip unit and provide deeper access to the emerging artificial intelligence market. Although the company is already on the rise in revenue from AI computing, Broadcom has been overshadowed by Nvidia, the top seller of AI processors.

CEO Tan will benefit greatly if the business achieves long-term financial targets. The executive is expected to acquire 610,521 shares of Broadcom if AI revenue reaches $90 billion by fiscal 2030. If sales reach $120 billion, Tan is ready to receive 300% of the payment.

(With input from Bloomberg)