Broadcom Stock Dips Post Earnings: Is AVGO a Buy, Sell, or Hold?

Broadcom (AVGO) stock retreated sharply following the release of its fourth-quarter fiscal 2025 earnings. Despite delivering results that exceeded market expectations, shares of the semiconductor and software company fell 11.4% on Friday, Dec. 12. This dip reflects profit-taking rather than deterioration in underlying business performance.

The pullback comes after an exceptional run in 2025. Broadcom has been one of the major beneficiaries of the surge in artificial intelligence (AI) spending, with strong demand for its AI-focused semiconductors and steady contributions from its VMware software business. Even after the recent decline, the stock remains up roughly 50% year to date.

Investor concerns appear to be centered on margins and broader sentiment toward AI infrastructure stocks. Management indicated that consolidated gross margin in the first quarter is expected to decline by about 100 basis points sequentially, largely due to a higher mix of AI-related revenue. This guidance, coupled with growing chatter about a potential AI bubble, weighed on the stock despite the company’s robust quarterly performance.

That said, Broadcom’s fundamentals remain intact. While near-term margin pressure is a valid consideration, the company’s expanding software revenues should help offset some of this impact over time, particularly as software typically carries higher margins than hardware. Further, Broadcom’s strong execution and solid growth outlook help counter fears that AI demand is peaking.

Moreover, Broadcom continues to generate solid free cash flow. It reported $7.5 billion in free cash flow during the quarter, representing 41% of revenue. Moreover, its balance sheet remains strong, with a debt-to-equity ratio of 0.88x, which is not very high.

As Broadcom’s fundamentals remain strong, should you buy the dip in AVGO stock post earnings?

Momentum in Broadcom’s Business Set to Continue Into 2026

Broadcom delivered stellar performance in fiscal 2025. It reported consolidated revenue of about $64 billion for the year, representing a 24% year-over-year increase. The company’s top line benefited from solid momentum in its AI-related semiconductors business and the continued strength in its infrastructure software portfolio following the VMware acquisition.

AI revenue surged 65% year-over-year to approximately $20 billion, driving Broadcom’s semiconductor segment to a record $37 billion in annual revenue. Demand for AI accelerators, networking solutions, and related components remained strong, as customers continued to invest aggressively in next-generation data center infrastructure. At the same time, Broadcom’s Infrastructure Software business delivered impressive results, with revenue climbing 26% year-over-year to $27 billion, supported by the rapid adoption of VMware Cloud Foundation.

Looking ahead, the momentum seen in 2025 will carry into 2026. Broadcom’s AI revenue will continue to accelerate, driving its growth. At the same time, the non-AI semiconductor revenue is expected to remain stable. Infrastructure software revenue is projected to grow at a low double-digit rate, driven largely by expanding VMware deployments as customers modernize and consolidate their IT environments.

Broadcom’s custom accelerator business, which continues to scale at a healthy pace, will drive its growth. As customers increase adoption of XPUs, Broadcom is becoming an increasingly strategic partner in their AI roadmaps. This deepening customer engagement strengthens revenue visibility and strengthens the company’s competitive moat.

Moreover, demand has also been strong in AI networking, where customers are building out data center infrastructure. Broadcom’s order backlog for AI switches alone now exceeds $10 billion. The company has also secured record orders for digital signal processors (DSPs) and optical components with applications in AI data centers.

Taken together, Broadcom’s AI-related products, including XPUs and networking components, have driven the total AI backlog to $73 billion. The strong backlog and increased customer spending will support its top and bottom-line growth in fiscal 2026.

Is Broadcom Stock a Buy, Sell, or Hold?

Broadcom heads into 2026 with strong momentum. The semiconductor and infrastructure software giant continues to benefit from surging demand for AI-related chips, supported by a sizable backlog that provides strong revenue visibility over the coming years. Further, Wall Street analysts maintain a “Strong Buy” consensus for the stock.

That optimism, however, is already well reflected in Broadcom’s share price. The stock is currently trading at a forward earnings multiple of roughly 52.7 times, which is expensive. While analysts project AVGO’s earnings per share to grow by 36.9% in fiscal 2026, followed by another 21.7% increase in fiscal 2027, that growth trajectory is not enough to justify such a premium multiple.

There is no question that Broadcom is a high-quality AI beneficiary with durable competitive advantages and long-term growth drivers. Still, at current levels, much of the anticipated growth appears to be priced in, and investors should wait for a pullback to improve AVGO’s risk-reward.