Broadcom Slides 4% Despite Q4 Beat As Management Warns Q1 Margin Squeeze, Tax Hikes Could Overshadow AI Growth

Broadcom Inc. (NASDAQ:AVGO) shares fell more than 4% in after-hours trading on Thursday, reversing initial gains even after the semiconductor giant delivered a fourth-quarter earnings beat and reported record artificial intelligence (AI) revenue.

Check out AVGO’s stock price here.

Profitability Under Pressure

Despite a 74% surge in AI sales, investors focused heavily on disappointing guidance regarding shrinking gross margins and a sharply higher tax rate for fiscal 2026.

While the company posted the fourth quarter revenue of $18.02 billion—beating analyst estimates of $17.49 billion—management offered a cautious outlook for profitability that spooked the market.

CFO Kirsten Spears guided for fiscal first-quarter gross margins to drop approximately 100 basis points sequentially.

This compression is driven by a shift in revenue mix toward lower-margin AI hardware components, fueling fears of profitless growth where top-line expansion comes at the cost of efficiency.

CFO Shocks With Tax Hike

Compounding the bearish sentiment, Broadcom forecasted its non-GAAP tax rate will jump from 14% to approximately 16.5% in 2026 due to the global minimum tax and geographic income shifts.

This 2.5% hike presents a direct headwind to future earnings per share (EPS), forcing analysts to recalibrate their models downward despite the company’s growth.

See Also: Broadcom Stock Boosted By Q4 Earnings Beat, AI Revenue Surge: ‘We See Momentum Continuing In Q1’

AI Boom Meets Reality

The sell-off stands in stark contrast to Broadcom's operational momentum. CEO Hock Tan revealed a massive $73 billion backlog in AI orders—comprising custom accelerators (XPUs) and networking gear—scheduled for delivery over the next 18 months.

The company also secured its fifth custom silicon customer with a $1 billion initial order. However, Tan tempered expectations regarding the timeline for its high-profile partnership with OpenAI.

He clarified that the 10-gigawatt power agreement discussed in recent reports is a long-term project slated for the 2027–2029 timeframe, essentially removing it as a catalyst for fiscal 2026.

Stagnant Legacy Business

Beyond the AI hype, Broadcom's core business remains stuck in neutral. The company expects non-AI semiconductor revenue to remain flat year-over-year in the first quarter, noting “limited signs of recovery” in enterprise spending.

While Broadcom raised its quarterly dividend by 10% to 65 cents per share, the lack of a broader cyclical recovery combined with margin pressures ultimately overshadowed the quarter’s record-breaking headline numbers.

AVGO Outperforms Market In 2025

Shares slipped by 4.47% in after-hours trading after falling 1.60% on Thursday. Year-to-date, the shares were 75.28% higher, whereas they rose by 60.68% over the last six months.

It maintains a stronger price trend over the short, medium, and long terms, with a poor value ranking. Additional performance details, as per Benzinga’s Edge Stock Rankings, are available here.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.