Broadcom Earnings Did Not Surprise High Expectations Already Priced Into Stock Price

$Broadcom(AVGO)$ expects AI revenue growth to accelerate even higher in 2026, and Broadcom CEO sees spending momentum by customers for AI to continue to accelerate in 2026, but why is Broadcom share price still not surging after earnings release?

In this article we would like to discuss why Broadcom (AVGO) did not surge despite bullish AI commentary, what this signals about market expectations, and how investors can still position for advantage.

1. Why Broadcom’s Stock Did Not Surge After Earnings

Even with strong AI commentary from management, several market dynamics generally cap post-earnings upside.

(A) Expectations were already extremely high

By late 2025, Broadcom is widely viewed as one of the “AI infrastructure oligopoly” players. Investors have already priced in:

• High-double-digit AI segment growth

• Rising custom ASIC demand from hyperscalers

• Persistent software cash flows (VMware + legacy)

• Margin expansion tied to AI accelerators

When the market is expecting acceleration, simply confirming it does not meaningfully re-rate the stock.

Key point: The market needed positive surprises, not just confirmation.

(B) Lack of near-term visibility on monetization timing

Even though the CEO says AI spending momentum will accelerate into 2026, investors still want:

• quarterly acceleration (not annual guidance)

• confirmed volumes for next-gen accelerators

• clarity on hyperscaler capex cadence

• evidence that custom AI ASIC wins convert into margin expansion

Broadcom’s CEO also mentioned that large customers are still upgrading technology, which implies:

• revenue recognition may lag actual orders

• near-term upside remains back-loaded

• new designs may take multiple quarters to ramp

This makes investors cautious in the short term.

(C) Market rotation and profit-taking

Late 2025 markets are showing:

• selective rotation out of megacap AI names

• profit-taking after multi-quarter rallies

• rising skepticism about “AI bubble” valuations

In this environment, even strong AI commentary does not automatically trigger a rally. Investors want proof that Broadcom’s AI revenues will produce further margin expansion, not just growth.

(D) Not all AI revenue is equally valued

The market differentiates between high-margin vs. low-margin AI revenue.

Broadcom’s AI accelerator business (e.g., custom silicon for hyperscalers) is:

• a large revenue driver

• but margin-volatile

• dependent on a small number of very large customers

• tied to long design cycles

Investors want to confirm that:

• AI revenue mix expands gross margin

• concentration risk does not rise

• VMware integration does not dilute returns

Until these concerns are resolved via data, the stock reaction remains measured.

2. Are Investors “too anxious” About AI Results?

Partially, yes.

The market is now in a phase where AI optimism is high, but earnings must catch up:

• Hardware cycles take time

• Hyperscaler procurement is lumpy

• New architectures (e.g., custom accelerators) need validation

• Software synergies take multiple quarters to crystallize

Investors want evidence, not promises.

3. How Investors Can Continue To Invest And Take Advantage

Here are practical approaches depending on your strategy.

(A) Long-term investors: Accumulate on weakness

Broadcom’s long-term AI thesis remains intact:

• Top 3 global players in custom AI silicon

• Expanding portfolio in networking/optical interconnect

• Sticky software cash flows (VMware, CA, Symantec)

If valuation pulls back on sentiment rather than fundamentals, gradual accumulation is a rational strategy.

Key triggers to watch:

• sustained 30–40%+ AI revenue growth

• margin expansion from next-gen accelerators

• diversification beyond hyperscalers

• improved free cash flow conversion post-VMware integration

Across the board, hyperscalers have signaled that their 2025 capex will increase materially—especially in infrastructure like XPUs and networking hardware.

But will we see the same CAPEX spending in 2026 from the hyperscalers?

(B) Medium-term investors: Trade around AI catalyst windows

Broadcom typically sees:

• revenue ramping in the second half

• strong seasonal hyperscaler orders

• architecture cycle upgrades every 12–18 months

Investors can position before:

• new ASIC design wins

• major customer roadmap announcements

• hyperscaler capex inflections (Amazon, Google, Meta, Microsoft)

• annual investor day updates

(C) Tactical investors: Option-based hedging

If you want to stay exposed yet manage volatility:

• Covered calls (AVGO has high implied volatility premiums)

• Cash-secured puts during broad market drawdowns.

• Long-dated calls (LEAPS) if you believe in 2026–2027 AI demand cycles

This protects against macro rotation while keeping upside optionality.

A Bull Put Spread, a premium-selling strategy, may be attractive for Broadcom post-earnings for two key reasons:

IV Crush: Earnings cause a sharp decline in Implied Volatility (IV). Selling a put spread capitalizes on this IV crush, capturing premium quickly.

Bullish Confirmation: Broadcom's strong AI guidance supports the stock's fundamental value, implying the stock is unlikely to drop significantly below a key support level. The spread profits if AVGO stays above the sold put strike, offering income while defining risk.

(D) Diversify within AI infrastructure

Instead of relying solely on Broadcom, consider a basket that balances:

• compute leaders (NVDA, AMD, AVGO custom ASIC)

• networking (Marvell, Arista, Cisco AI optical)

• memory/HBM suppliers (Micron, SK Hynix)

• cloud AI hyperscalers (Microsoft, Amazon, Google)

This reduces single-company execution risk.

4. Summary: Why The Stock Did Not Jump

Even though Broadcom is guiding for even faster AI growth in 2026, the stock did not surge due to:

• expectations already elevated

• monetization still back-loaded

• cautious institutional sentiment

• ongoing rotation and macro concerns

• margin and customer concentration uncertainties

But the long-term fundamental story remains strong.

In the next section I would like to share a compact, investor-grade scenario model built for Broadcom (AI semiconductor revenue) 2026–2028 plus a tactical strategic allocation model comparing Broadcom versus other AI-infrastructure leaders ( $NVIDIA(NVDA)$, $Advanced Micro Devices(AMD)$, $Marvell Technology(MRVL)$, $Cisco(CSCO)$).

Here we show the assumptions, three scenarios (Bear / Base / Bull), a short sensitivity table, and concrete portfolio weightings for three investor profiles (Conservative, Balanced, Aggressive) together with rebalancing/triggers and risk notes.

We used Broadcom’s reported quarterly AI figures and public guidance as the baseline, and recent peer data and industry signals to justify growth-rate choices. Key source anchors are cited inline for the load-bearing facts.

Using Broadcom’s FY2025 AI run-rate (~$19.9B) as the starting point, the company’s AI revenue could range from roughly $24B (bear) to $78B (bull) by FY2028 — the most likely (base) path is ~$45B in FY2028 — and portfolio allocations should reflect different risk tolerances with clear catalyst / rebalancing rules.

Inputs & Baseline That Was Used

Reported Broadcom AI quarterly figures (Q1 FY25 AI revenue $4.1B; Q2 $4.4B; Q3 $5.2B; Q4 guided/projected ~$6.2–$8.2B depending on quarter). Summing these quarters gives an approximate FY2025 AI revenue baseline ≈ $19.9B (approx).

Broadcom guidance / management commentary expecting continued momentum and a large Q1 FY26 AI quarter (company guidance reference to $8.2B for next quarter).

Peer context: NVIDIA record Data Center revenue (scale and CAGR references) and AMD/Marvell recent guidance and strategic moves (for comparative growth expectations).

Important: Fiscal years and quarters referenced are Broadcom’s fiscal numbering (company releases in late 2025). Here we show projections on a fiscal-year basis labelled FY2026–FY2028 to match Broadcom’s guidance cadence.

Scenario model — Broadcom AI semiconductor revenue (fiscal-year totals)

Assumption: FY2025 AI revenue baseline ≈ $19.9B (sum of reported guided/actual quarters in FY2025). Growth rates below are annual YoY applied to the prior fiscal year.

Notes on scenario choice and interpretation:

Bear assumes hyperscaler cadence slows, design wins remain but ramp slower, and non-AI segments drag overall. This is useful for conservative valuation work and cashflow stress-tests.

Base reflects continued strong hyperscaler spend, Broadcom converting design wins to production volumes, and good uptake of AI networking and custom ASICs — consistent with management commentary and industry growth. (Matches the idea of Broadcom’s AI segment continuing strong multi-quarter growth).

Bull assumes rapid multi-customer adoption, large additional wins beyond the current hyperscalers and meaningful share gains vs. other architectures — this yields very large AI revenue by FY2028 and would materially re-rate the business if margins hold.

We recommend using the Base column for scenario planning unless you are explicitly stress-testing a portfolio for downside or highly speculative upside.

Sensitivity table (quick view — FY2028 AI revenue vs FY2026 growth rate)

This shows how final FY2028 outcomes move with FY2026 initial acceleration.

• If FY2026 growth = 20% → FY2028 ≈ $30B (slow)

• If FY2026 growth = 40% → FY2028 ≈ $45B (base)

• If FY2026 growth = 80–100% → FY2028 ≈ $60–78B (bull)

(Those are consistent with the scenario table above — use them to stress test valuation multiples and margin assumptions.)

How This Maps To Valuation & Investor Expectations (Brief)

If AI revenue grows per the Base path with modest margin uplift, Broadcom’s enterprise value justified by multiples could still compress if investors expected even faster monetization — that’s why a beat/confirm often doesn’t produce a price surge unless growth exceeds already-rich expectations. The market is pricing forward evidence, not just guidance.

Strategic Allocation Model — Who To Hold vs. Broadcom

We have prepared pragmatic allocation templates that balance exposure to Broadcom vs. other AI infrastructure leaders. The goal: participate in the AI infrastructure upside while managing single-name execution risk (concentration, customer concentration, design cycles).

Why Do We Choose These Selected Comparator

NVIDIA (NVDA): market leader in GPUs / dominant Data Center revenue scale (NVIDIA’s Data Center revenue cited).

AMD (AMD): aggressive data-center / XPU push and high growth guidance from Analyst Day.

Marvell (MRVL): networking, optics & custom silicon plays; recent M&A (Celestial AI) moves highlight ambitions in next-gen interconnects.

Cisco (CSCO): infrastructure / AI orders from webscale; exposure to networking and enterprise AI adoption.

Three model portfolios (weights are % of AI-infra sleeve — not entire net worth)

Conservative (income + low churn) — objective: steady cash + moderate AI exposure

• Broadcom (AVGO): 45% — high cash flow, software accretion (VMware), dividend.

• Cisco (CSCO): 25% — enterprise networking + exposure to webscale AI orders.

• NVIDIA: 15% — selective exposure to GPU leadership (smaller % for volatility).

• AMD: 10% — optional exposure to rising CPU/AI stack.

• Cash / Hedged options: 5%

Balanced (growth + risk control) — objective: participate in secular upside, limit single-name blowups

• NVIDIA: 30%

• Broadcom: 30%

• AMD: 15%

• Marvell: 10%

• Cisco: 10%

• Cash/Options hedge: 5%

Aggressive (growth-first) — objective: maximum participation in AI infrastructure scale-ups

• NVIDIA: 40%

• Broadcom: 25%

• AMD: 15%

• Marvell: 10%

• Small caps / thematic bets (photonic startups, Celestial-type tech): 5%

Rationale highlights:

Broadcom is included heavily in conservative/balanced mixes because its combined software (predictable cash flow) + custom ASIC/networking revenue provides a defensive income layer relative to pure hardware plays.

NVIDIA must be the largest slice in aggressive allocations because of sheer Data Center scale; but NVDA carries valuation and concentration risks that justify lower weights in conservative mixes.

AMD/Marvell are growth complementors: AMD for compute/XPU upside; Marvell for networking/photonic opportunities that can materially affect data-center economics (and Broadcom competitive dynamics).

Practical Implementation & Trade Rules

Position sizing: Limit any single equity to no more than 20–25% of your AI-infra sleeve unless you explicitly accept single-name risk.

Cost averaging: For long-term accumulation, buy on disciplined pullbacks (e.g., >5–10% drawdown from recent high), unless you have strong conviction and large cash.

Options overlays: Use covered calls (conservative), cash-secured puts or LEAPS (speculative) to manage volatility while remaining exposed.

Catalyst triggers — add / trim rules:

• Add on confirmation of multi-quarter outperformance vs. guidance (e.g., sustained YoY AI revenue > 40% and improving gross margins).

• Trim if: AI revenues disappoint two consecutive quarters vs. the Base path; or if customer concentration (a single customer > X% of AI rev) increases and is highlighted in filings.

Rebalance cadence: Quarterly review; rebalance if allocations deviate by >5 percentage points from target.

Risks & Watchlist (What Kills The Bull Case)

Hyperscaler capex lulls or reallocation across GPU/ASIC architectures — timing is lumpy.

Customer concentration — Broadcom has large hyperscaler customers; a single large customer slowdown hits revenue.

Margins / mix risk — AI networking revenue mixes lower than custom ASIC margins or vice versa; need to monitor gross-margin trends with revenue mix.

Geopolitical export controls that restrict chips into China could lower TAM or slow revenue ramps.

Competition / new architectures (GPUs, other XPUs, photonics) that change procurement decisions — e.g., Marvell’s Celestial AI push or future NVIDIA/AMD product changes.

Summary

Broadcom is highly confident in its Artificial Intelligence (AI) trajectory, projecting continued, accelerated revenue growth well into fiscal year 2026. CEO Hock Tan highlighted accelerating spending momentum from hyperscale customers building massive AI data centers. The company forecasts its AI semiconductor revenue—driven by its custom AI accelerators (XPUs/ASICs) and high-speed Ethernet AI networking switches—to double year-over-year in the subsequent quarter.

Why the Stock Is Not Surging

The apparent lack of a sharp post-earnings "surge" is primarily due to the extremely high expectations already priced into the stock. Broadcom’s shares had already experienced a significant rally prior to the release, pushing its valuation to a substantial premium. In this scenario, strong guidance that meets or slightly exceeds these aggressive market forecasts is often viewed as merely sustaining the rally, not dramatically accelerating it. This reaction is common for high-flyers—a case of "buy the rumor, meet the news"—where investors may quickly take profits rather than push the price significantly higher immediately.

Investor Strategy

The CEO’s point that technology is still updating is key: it underscores that the AI infrastructure cycle is an evolutionary, multi-year process requiring continuous innovation. Broadcom's sustained success relies on its ability to execute on the next generations of its custom chips and networking solutions.

To take advantage of this long-term trend, investors should:

1. Focus on the Long-Term Thesis: Base investment decisions on Broadcom’s enduring competitive moat—its essential role in providing the custom silicon and networking plumbing for the largest AI clusters.

2. Mitigate Valuation Risk: Instead of trying to time the market for a surge, consider strategies like Dollar-Cost Averaging to build a position over time, smoothing out the high-valuation entry points.

3. Watch Execution: Monitor Broadcom's ability to maintain its technological lead in networking (like the Tomahawk switch line) and secure new design wins for its custom chips beyond its established customers.

Appreciate if you could share your thoughts in the comment section whether you think AVGO is still strong fundamentally even though we did not see a surge after its earnings on 11 Dec 2025.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.