Broadcom stock sinks after results show profit pressures, adding to investor fears over AI payoff-amtomessage

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2025-12-13

Broadcom stock sinks after results show profit pressures, adding to investor fears over AI payoff

Broadcom (AVGO) stock fell more than 10% on Friday after the company’s quarterly results revealed investor concerns about the profitability of its AI business.

The company reported results late Thursday that topped Wall Street forecasts. The top Google (GOOGL, GOOG) chip supplier reported it received orders from leading AI developer Anthropic (ANTH.PVT) that surged to $21 billion.

But Friday’s decline took more than $200 billion off the chipmaker’s market cap after Broadcom guided for a gross margin of 76.9% for the current quarter, which would mark a decline from 79% in the year-ago period.

It would also be a step down from 77.9% in the fourth quarter and 78.3% in the third quarter — although these figures still represent extremely high profitability.

Meanwhile, the company’s AI chip sales soared 74% to $6.4 billion from the previous year, ahead of the $6.2 billion projected by Wall Street analysts tracked by Bloomberg. Overall revenue climbed nearly 30% year over year to $18 billion, more than the $17.5 billion expected, and earnings per share rose to $1.95 from $1.42.

“While all of these AI revenue figures are surging higher, the cost of this growth comes on margins,” Deutsche Bank analyst Ross Seymore wrote of Broadcom’s results in a note to clients on Friday.

Investors have rotated out of tech stocks this week following reports from Broadcom and Oracle (ORCL), with the Nasdaq Composite (^IXIC) dropping 1.4% Friday, as concerns persist over the timeline to a return on the industry’s investments in AI.

Oracle stock fell over 14% on Thursday after its own quarterly report revealed higher costs related to its AI investments. Even with Friday’s decline, Broadcom stock remains up 3% over the past month, while Oracle shares are down nearly 20% and are down almost 50% from highs reached in September.

Historically, most semiconductor makers operated like commodity businesses, as products were relatively undifferentiated, competition was intense, and profit margins were thin.

The emergence of AI chips changed that dynamic.

A small number of companies — particularly Nvidia (NVDA) — control the market with highly specialized chips that are in exceptionally high demand and short supply, allowing those companies to command premium prices and earn unusually high margins.

But as more competitors enter the AI chip market and supply increases, some analysts worry that the economics could eventually start to resemble traditional semiconductor markets again, where chips behave more like commodities, companies’ pricing power weakens, and their profits decline.