Broadcom Inc. (NASDAQ: AVGO) is set to report its first-quarter fiscal 2026 earnings after the market closes on March 4, with investor focus sharply divided between the company's massive AI-driven revenue growth and mounting concerns over declining profitability margins.
Wall Street expects Q1 revenue of $19.1 billion, matching the company's guidance and representing a 28% year-over-year increase. The consensus for adjusted earnings per share (EPS) is $2.03, implying roughly 26% growth. Broadcom has a strong track record of meeting or beating estimates, having done so for revenue in 22 of the last 24 quarters and for adjusted EPS in 23 of those 24.
However, the stock has been under pressure, falling more than 15% since its December 2025 report and trading around $330, roughly 20% below its December peak. The market's reaction will hinge less on the Q1 numbers and more on forward guidance and commentary on gross margins.
The central issue is a projected decline in gross margin, which stood at nearly 78% last quarter. Management has cautioned that Q1 gross margin could fall by approximately 100 basis points sequentially, driven by a higher mix of AI-related revenue. AI chip sales carry lower gross margins than the company's legacy semiconductor business. As AI grows faster—with Q1 AI semiconductor revenue guided to $8.2 billion, nearly double year-over-year—the overall margin profile is shifting downward.
The bullish case is anchored by a reported $73 billion AI backlog, deliverable over roughly 18 months. In Q4 FY2025, AI semiconductor revenue hit $6.5 billion, up 74% year-over-year, with full-year AI revenue reaching $20 billion. CEO Hock Tan has confirmed a fifth hyperscale "XPU" customer with a $1 billion initial order, and AI firm Anthropic added an $11 billion order on top of an existing $10 billion commitment, signaling diversified demand.
Despite the stock's slide, analyst sentiment remains largely positive. The consensus price target is near $433, implying about 30% upside, while targets updated after the December report average around $458. Recent analyst actions include UBS reiterating a Buy rating with a $475 target, DA Davidson initiating coverage with a Neutral rating due to long-term AI ASIC market concerns, and Jefferies reaffirming a Buy rating based on Broadcom's position in AI and networking.
