Broadcom shares fell sharply in early U.S. trading on Friday, as investor concerns over margin pressure and delayed revenue from OpenAI overshadowed the chipmaker’s stronger-than-expected quarterly earnings.
The server chip manufacturer issued bullish guidance for the current quarter, projecting that revenue from its artificial intelligence chips will double year over year in its fiscal first quarter. Broadcom also outlined an AI chip backlog of $73 billion over the next 18 months.
Despite the upbeat outlook, Broadcom Inc. (NASDAQ: AVGO) dropped 8.4% by 9:43 a.m. ET. The stock had initially jumped more than 3% following the earnings release and remains up roughly 75% so far in 2025.
Margin outlook and OpenAI timeline weigh on shares
The stock reversed course after CEO Hock Tan said during the post-earnings call that revenue from non-AI chips is expected to decline sequentially this quarter due to weak demand in that segment.
Tan also noted that AI-related revenue carries lower gross margins compared with Broadcom’s non-AI business, which is forecast to remain flat on a year-over-year basis in the current quarter.
Addressing questions about OpenAI, Tan said he does not expect meaningful revenue from the partnership in 2026. Broadcom has agreed to supply OpenAI with up to 10 gigawatts of data center infrastructure between 2026 and 2029, with most financial benefits expected to materialize in 2027, 2028, and 2029.
Tan added that Broadcom is also collaborating with OpenAI on a custom AI accelerator, which he described as being at a “very advanced stage.”
The extended revenue timeline reignited concerns about OpenAI’s ability to meet long-term commitments, an issue that has weighed on the broader AI sector in recent weeks. Shares of Oracle fell sharply on Thursday after the company disclosed that a large portion of its future revenue commitments are tied to OpenAI.
Earnings beat, analysts stay bullish
Broadcom reported adjusted earnings per share of $1.95 on revenue of $18.02 billion for its fiscal fourth quarter, beating analyst expectations of $1.87 per share on $17.45 billion in revenue.
For the first quarter, the company forecast revenue of approximately $19.1 billion, well above consensus estimates of $18.31 billion.
Broadcom designs custom AI chips and produces Google’s tensor processing units (TPUs), positioning it as a key competitor to Nvidia in AI data center infrastructure. The company has been a major beneficiary of the AI investment boom over the past two years.
Despite the stock’s pullback, Wall Street analysts largely praised the results, with many raising their price targets.
Analysts at Vital Knowledge described the report as solid, highlighting the strength of Broadcom’s AI sales outlook driven by Google’s TPU and Gemini momentum.
Meanwhile, BofA Securities analyst Vivek Arya lifted his price target to $500 from $460, citing strong fundamentals despite concerns around backlog expectations, margin mix pressure, OpenAI’s delayed revenue contribution, and Broadcom’s valuation premium relative to Nvidia. Arya maintained his Buy rating and reaffirmed Broadcom as a top pick.
