Broadcom (NASDAQ:AVGO | AVGO Price Prediction) has delivered a strong performance in 2025, with shares up approximately 46% year-to-date, driven largely by demand for its artificial intelligence (AI)-related semiconductors and custom chips. The stock reached an all-time high of $414.61 per share last week.
However, following the company’s fiscal fourth-quarter earnings report, its shares have declined sharply. The day after it hit its peak — which beat expectations on revenue and earnings per share — the stock fell more than 11% in a single session over concerns about gross margin pressure from a higher mix of AI revenue. Additional declines followed, with shares dropping another 5.6% yesterday, resulting in a cumulative drop of more than 17% over three trading days. Broadcom’s stock is trending lower again this morning in premarket trading.
Broader concerns about AI investment returns and profitability have pressured multiple AI-related stocks in recent weeks, though Broadcom had held up better until this pullback. Shares are roughly flat over the prior month.
The question for investors is, does this sharp drop indicate more downside ahead, or is it a back-up-the-truck opportunity in a company with robust long-term AI prospects?
Reasons for the Rally
Broadcom’s ascent in 2025 stemmed primarily from explosive growth in its AI semiconductor business. Fiscal fourth-quarter AI revenue hit $6.5 billion, up 74% year-over-year, reflecting strong demand for custom AI processors and networking solutions from hyperscalers such as Google, Meta Platforms (NASDAQ:META), Anthropic, and OpenAI.
The chipmaker secured major contracts, including partnerships for custom chips, that contributed to overall revenue growth of 28% in the quarter. Its infrastructure software segment — bolstered by the 2023 VMware acquisition — provided additional ssupport with recurring subscription revenue.
These factors propelled the stock’s gains this year, outpacing many peers and solidifying Broadcom’s position as a key beneficiary of the AI infrastructure buildout.
Triggers for the Recent Sell-Off
Yet, the sharp decline began after the earnings release. Despite beating estimates and guiding for strong first-quarter revenue, management highlighted gross margin pressure from an increase in AI revenue, which carries lower margins than some traditional segments.
This sparked investor worries about near-term profitability in the AI boom. The sell-off intensified during a broader rotation out of AI-related stocks, spurred by reports of delayed data center projects and debates over returns on hyperscaler capital expenditures. Rising debt levels have also weighed on the sector.
Semiconductor indexes fell significantly — the PHLX Semiconductor Sector index, comprising the 30 largest U.S.-traded semiconductor stocks, is down more than 6% — with Broadcom leading decliners on multiple days. Profit-taking after the year’s massive run also played a role, as expectations had run high heading into earnings, a classic buy-the-rumor, sell-the-news situation.
Wall Street’s Bullish Stance
Analysts, though, remain overwhelmingly positive on Broadcom’s outlook. Consensus ratings remain a Strong Buy, with an average one-year price target of $455 per share, implying 33% upside. UBS raised its target to $475 per share after the earnings report, while Trusit Financial set an industry high of $500 per share. Analysts seemed unanimous in their outlook, all reiterating buy or better ratings, citing sustained AI demand, a large backlog, and potential for accelerated growth next year. They point to Broadcom’s leadership in custom AI chips and networking as supporting further sales growth.
Key Takeaway
Broadcom trades at a forward price-to-earnings ratio below 25x based on fiscal 2026 estimates, with a price-to-earnings-to-growth (PEG) ratio of 0.69 when factoring in its expected 36% long-term EPS growth. Analysts project that strong earnings expansion will be driven by AI, making Broadcom’s current valuation appear reasonable based on its growth prospects compared to its historical multiples.
The chipmaker’s recent drop reflects short-term concerns over margins and AI spending worries rather than any fundamental weakness in demand. With analysts maintaining Buy ratings and lofty price targets, plus ongoing AI revenue acceleration, dips like this present buying opportunities for long-term investors focused on Broadcom’s dominant position in AI infrastructure.
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