Broadcom tumbles despite top- and bottom-line beat on dearth of new major customers, profitability concerns
CEO Hock Tan revealed that Anthropic is the $10 billion mystery customer announced last quarter, and that the company has since secured a fifth major customer for AI chips.
Custom chip specialist Broadcom rallied after delivering a top- and bottom-line beat in Q4 along with a robust outlook for the current quarter, but those gains fizzled out and turned to deep declines during the conference call. Shares are down nearly 9% in early trading on Friday.
The results:
Guidance for Q1 2026 was ahead of what Wall Street had penciled in:
“We see the momentum continuing in Q1 and expect AI semiconductor revenue to double year-over-year to $8.2 billion, driven by custom AI accelerators and Ethernet AI switches,” President and CEO Hock Tan said.
That guidance for its AI book of business is a whopping 20% above the consensus estimate for the current quarter.
Management also announced an increase in the quarterly dividend to $0.65 from $0.59.
On the conference call, Tan said the mystery $10 billion new customer announced during the previous quarter’s earnings call was Anthropic, maker of the Claude chatbot. He added that Broadcom has received an additional $11 billion order from Anthropic, and has also secured a $1 billion order from a fifth major customer for AI products.
Shares reversed gains of as much as 4% to turn deeply negative after those comments from the CEO. The declines may be tied to the relatively small order from this one new customer, which pales in comparison to what Tan unveiled following Q3 results, as well as fears this recent business growth is lower-margin in nature.
The Anthropic sales are somewhat of an extension of its Google business, as Broadcom is selling it the Ironwood TPUs that it developed with the search giant. Morgan Stanley analyst Joseph Moore suggested that some of the margin from these Anthropic sales will therefore go to Google, and flagged that selling racks rather than custom chips alone (as Tan indicated on the call) carries a lower margin, as well.
Bank of America analyst Vivek Arya called worries about profitability a “fair concern” and lowered his estimates for gross margins for the next two fiscal years while maintaining a buy rating and boosting his price target to $500 from $460.
Tan said that margins would compress because of this growth in AI sales, which has lower profitability than its software business. During the call, he faced questions about the potential for customers to disintermediate Broadcom from the high-margin parts of the chip design business by taking a customer-owned tooling approach, with would, if realized, further weigh on profitability.
Under this view, Broadcom’s margins would become its customers’ cost savings.
“This concept of customer tooling is an overblown hypothesis, which frankly, I don’t think will happen,” Tan said.
In total, Broadcom has a $73 billion AI backlog it expects to realize within the next 18 months, per the CEO, who later called this amount a “minimum” for sales over the next six quarters. The consensus estimate for cumulative AI product sales over the next six quarters is roughly $69 billion.
Tan added that he doesn’t expect Broadcom’s pact with OpenAI, announced in October, to drive much business in 2026.
Broadcom’s sharp pullback may be a function of how high enthusiasm regarding its prospects had gotten ahead of this report. Google’s Gemini 3 model, which received rave reviews, was trained on those aforementioned custom TPUs that it codesigned with Broadcom. Since November 20, when the S&P 500 hit an intermediate bottom, Broadcom’s rally had left its main AI chip competitors, Nvidia and Advanced Micro Devices, in the dust.
In fact, Broadcom’s 12-month forward price-to-earnings ratio stood at a record premium to rival Nvidia’s heading into earnings, with Bank of America having argued that this means traders are pricing that the custom chip maker will take some AI market share away from the dominant incumbent.
