Broadcom Inc. (AVGO) has seen its shares decline by 9.7% over the last three months, lagging behind the Zacks Computer and Technology sector’s 0.9% return. The company’s financial struggles are attributed to margin pressures related to a growing AI product mix, supply constraints, and declining performance in its non-AI segments. In the third quarter of fiscal 2026, Broadcom reported a gross margin decrease of 210 basis points to 75%, and a projected gross margin of approximately 73% for the fourth quarter, down from 78% a year earlier.
In a positive note, Broadcom’s revenues increased 86% year over year to $29.6 billion, with AI semiconductor revenues rocketing by 221% to $16.7 billion in Q3, and projected to reach $21.7 billion in Q4. Despite these strong AI growth figures, non-AI revenues were $4.2 billion, showing minimal growth. Broadcom anticipates fiscal 2026 AI revenues of around $58 billion, increasing to $115 billion in fiscal 2027, supported by contracts with major clients like Google and Meta.
The Zacks Consensus Estimate projects Broadcom’s fiscal 2026 earnings at $11.74 per share, a 72.14% increase from fiscal 2025, while Q4 earnings are expected to be up 87.69% year-over-year at $3.66 per share. Despite its growth potential in AI, concerns remain regarding customer concentration and a high valuation with a forward price-to-sales ratio of 10.34, compared to the sector’s 6.11.
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