Broadcom (NASDAQ: AVGO), a key partner in Google's TPU development, delivered a stellar earnings report, with fourth-quarter revenue reaching $18 billion, exceeding the expected $17.49 billion and representing a 28% year-over-year increase, setting a new record. Adjusted earnings per share (EPS) were $1.95, a 37% year-over-year increase, also surpassing the expected $1.86. However, CEO Hock Tan stated that he was not at liberty to provide AI revenue forecasts for 2026, triggering market panic and causing the stock price to fall 4.6%.
Broadcom's Q4 financial report was strong, with both revenue and EPS exceeding expectations.
Broadcom delivered a stellar performance in its Q4 2025 earnings report, with revenue reaching $18 billion, exceeding the expected $17.49 billion and representing a 28% year-over-year increase, setting a new record. Adjusted earnings per share (EPS) were $1.95, a 37% year-over-year increase, also surpassing the expected $1.86.
CEO Tan Hock Eeng revealed staggering AI demand figures in a conference call, with Q4 AI revenue reaching $6.5 billion, a 74% year-over-year increase. The company holds a massive $73 billion in AI-related orders (including custom XPU chips, switches, DSPs, etc.), with a total order backlog of $162 billion, expected to ship within the next 18 months; the backlog for AI switches alone exceeds $10 billion, also expected to be delivered within the next 18 months.
In the conference call, Hock Tan also confirmed for the first time that the previously rumored mysterious major customer is indeed AI startup giant Anthropic. The two parties signed a multi-billion dollar order involving Google TPU (Project Ironwood), and an additional $11 billion order was placed this quarter. They also announced that they have signed a fifth custom chip (XPU) customer, with an initial order of $1 billion.
External concerns about a shift in revenue structure: high revenue, low gross margin
During the conference call, analyst Stacy Rasgon asked about gross margin data, and Broadcom CFO Kirsten Spears admitted that future gross margins will face pressure as the company begins selling complete AI server racks that include third-party components such as memory and cooling.
While this will result in higher total revenue and absolute profit, it will lead to a decrease in the overall gross margin percentage because the profit margin of hardware assembly is lower than that of chip design. The market is sensitive to this structural shift of high revenue and low gross margin.
The industry’s biggest long-term risk lies in customer internalization. Broadcom’s major customers (such as Google) have powerful resources, and the market is worried that these tech giants will eventually gain complete control of chip design capabilities or turn to other design companies, thus abandoning Broadcom.
In response to these criticisms, Hock Tan strongly stated that the idea that customers would completely switch to self-developed tools was an overblown hypothesis. He pointed out that the technology of customized AI accelerators (XPUs) is evolving extremely rapidly, and Broadcom possesses proprietary IP (such as SerDes and high-speed transmission interfaces) and packaging technologies. For customers, collaborating with Broadcom allows them to obtain more powerful chips faster than going it alone. He emphasized that this is a long-term strategic journey, and Broadcom's technological moat is not easily crossed.
Despite better-than-expected earnings, Broadcom's stock price reversed course and fell. The key reason was that Broadcom did not provide a forecast for AI revenue in 2026. Hock Tan responded, "The market is constantly changing, and it's difficult for me to predict what 2026 will be like. It's not convenient for me to give guidance."
This article, "Broadcom's Q4 earnings exceeded expectations! Despite securing a multi-billion dollar TPU order from Google, its stock price fell 4.6%," first appeared on ABMedia .
