Record AI Chip Revenue Sparks Investor Panic Over Falling Profit Margins

Broadcom posted blockbuster earnings this week. The semiconductor giant shattered records with $18 billion in quarterly revenue. Its artificial intelligence chip sales surged a staggering 74%.

Yet the stock price plummeted roughly 6% in immediate after-hours trading. Investors reacted to a stark warning from CEO Hock Tan. He stated that booming AI revenue is coming with significantly lower profit margins.

The AI Growth Paradox Unveiled

The numbers themselves were historic. According to Reuters, Broadcom’s fiscal fourth-quarter revenue hit $18.02 billion. That figure marks a 28% increase from the same period last year. The company’s AI semiconductor segment was the undeniable star.

Revenue from AI chips skyrocketed to $8.2 billion. This massive growth is driven by insatiable demand from cloud computing giants. Companies like Google and Meta are spending billions to build AI data centers.

Broadcom’s guidance for the current quarter also beat expectations. The firm projects revenue of about $19.1 billion. Despite this strength, the margin warning overshadowed everything.

Why Rising Sales Are Crushing Profitability

The core issue is a shift in business mix. AI hardware systems, while high-volume, carry inherently lower gross margins. Broadcom’s traditional networking and software products are far more profitable.

As AI revenue grows faster than other segments, it becomes a larger piece of the total pie. This mathematically drags down the company’s overall profit margin percentage. Absolute profit dollars may still rise, but the rate of return on sales compression worries Wall Street.

Analysts had baked endless AI growth into the stock price. The margin reality represents a painful recalibration. It suggests the AI gold rush may not be as lucrative for suppliers as once dreamed.

The record AI chip revenue reveals a tough new phase for the industry. Growth is now colliding with profitability. Investors are finally pricing in that tension.

A quick knowledge drop for you

What exactly did Broadcom’s CEO say about margins?

CEO Hock Tan explicitly warned that gross margins would decline. He cited the rising mix of lower-margin AI system sales as the primary reason. This shift is structural as AI becomes a larger part of their business.

Did Broadcom’s overall earnings still beat estimates?

Yes. The company’s revenue and profit for the quarter exceeded analyst forecasts. Their guidance for the next quarter also surpassed expectations. The negative reaction was purely about future margin pressure.

Is this a problem for other AI chip companies like Nvidia?

It could signal a broader industry trend. As AI hardware scales, competition and pricing pressures increase. All companies supplying this market may face similar margin challenges over time.

What is Broadcom’s AI revenue backlog?

The company reported an enormous AI-related backlog of $73 billion. This indicates confirmed demand for years to come. However, the profitability of fulfilling that backlog is now in question.

How did Broadcom stock perform before this report?

The stock had been a standout performer, rising over 75% in 2025 alone. It had surged approximately 180% in the past eighteen months on AI optimism. This drop represents a significant sentiment shift.

What are analysts saying after the report?

Many analysts note the report confirms a feared industry dynamic. Scaling AI revenue is easier than scaling AI profits. Some are reassessing long-term profit models for hardware suppliers.