Broadcom's AI Growth Pressures Margins Amidst Large Backlog

Key Quotes

"The AI trade hit another speed bump with Broadcom under pressure post-earnings on margin concerns. Deutsche Bank's Jim Reed noted that after a 78% year-to-date rally, Broadcom now has a larger market cap than Meta and Tesla, underscoring its central role in the AI narrative."

This quote highlights how Broadcom's stock performance, despite a significant rally, is now facing scrutiny due to margin worries. Jim Reed points out Broadcom's substantial market capitalization relative to other major tech companies, emphasizing its critical position within the AI sector's ongoing story.

"She said Q1 gross margin is expected to fall about 100 basis points sequentially, largely because AI revenue is taking a bigger share of the mix. Margins through 2026 will also depend on the balance between infrastructure software, semiconductors, and specific product lines."

CFO Kirsten Spears explains that a sequential decline in gross margin is anticipated due to a shift in revenue composition towards AI-related products. Spears indicates that future margins up to 2026 will be influenced by the interplay between different business segments, including software and semiconductors.

"CEO Hock Tan added that Broadcom has a $73 billion backlog of AI product orders scheduled over the next six quarters. But that backlog includes lower-margin system sales, which will become a larger portion of revenue in the second half of fiscal 2026."

CEO Hock Tan provides context on Broadcom's substantial order backlog, valued at $73 billion over the next six quarters. Tan clarifies that this backlog contains a significant component of lower-margin system sales, which are projected to represent an increasing share of the company's revenue in the latter half of fiscal year 2026.

"Trump is reportedly considering shifting cannabis from Schedule 1, the category for substances with no accepted medical use, to Schedule 3, which includes drugs with recognized medical applications and lower abuse potential."

This quote explains the potential reclassification of marijuana under US drug scheduling laws. It details the proposed move from Schedule 1, which signifies no accepted medical use, to Schedule 3, a category for drugs with recognized medical applications and a lower potential for abuse.

"Anheuser-Busch InBev says it will close its Merrimack, New Hampshire brewery in early 2026 as part of a broader effort to modernize its US operations. The plant, which has been running for about 50 years, is slated to shut down by January 31st."

This statement from Anheuser-Busch InBev announces the planned closure of its Merrimack, New Hampshire brewery by early 2026. The company frames this decision as part of a larger initiative to update its operational infrastructure within the United States, affecting a facility that has been operational for approximately five decades.

"In pre-market trading, Nasdaq futures are lower, pulled down by the Broadcom decline. But Dow and S&P futures are holding up better after yesterday's record close, as money managers rotate into lagging sectors for the end-of-year catch-up buying, a move that's showing faint echoes of the classic December chase."

This quote describes market movements in pre-market trading, noting the Nasdaq's decline influenced by Broadcom's stock performance. It contrasts this with the relative stability of Dow and S&P futures, attributing the resilience to money managers shifting investments into underperforming sectors for year-end adjustments, a pattern reminiscent of typical "December chase" activity.