The core driver of Broadcom’s share price decline was not the earnings numbers themselves, but rather the “reality check” delivered by CEO Hock Tan during the earnings call. His comments such as “don’t overestimate custom chips” and that customer in-house development is an “overstated assumption” directly triggered a concentrated reassessment by investors of Broadcom’s growth ceiling and stretched valuation.
Key Takeaways From the Earnings Report
Broadcom’s fourth fiscal quarter was very strong:
Revenue reached $18.02 billion, up 28% year-on-year,
Adjusted EPS came in at $1.95,
both significantly beating market expectations.
AI semiconductor revenue jumped 74% year-on-year, becoming the company’s clear growth engine. The company also issued next-quarter revenue guidance of $19.1 billion, again above market forecasts.
However, heading into this earnings release, market sentiment was already at a dangerously elevated level. Since the low in April 2025, Broadcom’s share price had soared more than 180%. Its forward P/E multiple had been pushed up to 42x, not only far above its 10-year historical average of 17x, but even surpassing all members of the “Magnificent Seven” except Tesla.
Investors had largely convinced themselves that Broadcom was the core winner in AI data-center build-outs, and that its deep partnership with giants such as Google effectively guaranteed “limitless growth.” A valuation this rich means anydetail that fails to support continued parabolic gains can become a trigger for profit-taking.
How the CEO “Frightened” Investors on the Call
Against this backdrop, Hock Tan’s measured remarks on the earnings call were interpreted as a reset to over-heated expectations. Market concerns focused on three main points:
The $73 Billion Backlog and Its “Two-Sided” Interpretation
Hock Tan disclosed that Broadcom’s AI-related order backlog stands at $73 billion, to be delivered over the next six quarters. Although he stressed this figure is a “floor” and that bookings are still accelerating, for investors hoping for a more explosive number, this scale seemed “not quite enough.”
This indirectly signaled that demand visibility, while strong, is not infinite and that growth is unlikely to follow a simple straight-line extrapolation.Cooling the Hype Around Custom Chips (ASICs)
Confronted with intense market discussion about tech giants all rushing to develop their own chips, Hock Tan bluntly stated this is an “overstated assumption.” He pointed out, rationally, that custom chip development takes a long time, while the performance of commercial GPUs (such as Nvidia’s products) has never stopped advancing, forcing customers to carefully weigh their resource allocation.
Although his intent was to highlight the value of Broadcom’s business, his remarks also frankly acknowledged the practical constraints and competitive realities facing the custom-chip market. This shattered the simplistic notion that custom chips would quickly and easily swallow a large share of the general-purpose GPU market.Business Model Shift and a Warning on Gross Margins
Broadcom is shifting from selling standalone chips to providing full “rack-scale systems” that include third-party components. The CFO admitted that this will cause gross margins to fall by about 1 percentage point quarter-on-quarter.
This confirmed market worries about the AI business turning into a story of “revenue up, margins down.” High growth accompanied by margin pressure means valuation models must be recalibrated.
Broadcom Share Price Analysis
The market’s reaction directly reflects this logic. After the earnings release, the stock initially rose about 4% in after-hours trading, indicating that the results themselves were well received. But once the conference call began, the share price reversed sharply lower, showing that Hock Tan’s commentary completely changed sentiment.
This is a classic “sell-the-news” move: the good news is fully priced in, and expectations are reset.
From a technical perspective, this decline is a deep correction from an extremely overbought state. Before the drop, the stock was at an all-time high, with all technical indicators showing severe overbought conditions. The high-volume sell-off has preliminarily confirmed the formation of a short-term top.
The share price will now first need to test the strength of its recent uptrend line (the support formed by connecting prior lows). If that level breaks, the stock may look toward more important psychological round numbers or previous consolidation zones for support. In the near term, the market is likely to enter a phase of digestion and reassessment, with volatility remaining elevated.
Deeper Implications for Google and the Custom-Chip Industry
The impact of Broadcom’s earnings call extends beyond the company itself, reflecting the broader reality and challenges of the custom-chip ecosystem. Hock Tan repeatedly cited Google’s TPU as an example, noting that these custom chips are being adopted by external customers such as Apple and Cohere, and that their commercial scale “could be very large.”
This reinforces the ecosystem value of the Google–Broadcom alliance, but it also further ties Broadcom’s performance to the success of Google’s efforts to promote TPU adoption externally.
At the same time, his comments reminded the market that custom chips (ASICs) and general-purpose GPUs (Nvidia) will coexist and complement each other over the long term, rather than forming a simple replacement relationship. Custom-chip development involves high barriers, long cycles, and performance trade-offs. Growth in this segment is strong, but rational—not mythical.
Lastly, internal ecosystem competition—such as Nvidia’s NVLink Fusion versus the UALink alliance that Broadcom participates in—will also shape how the landscape evolves.
Conclusion
Broadcom’s earnings clearly demonstrate its status as a core winner in AI infrastructure. However, the share price decline reveals that, after a period of exuberant expectations, capital markets are now re-examining the quality of growth, the structure of profitability, and the risks of dependence.
