Down About 18% From Recent Highs, Is Broadcom Stock a Buy?

Core Viewpoint - Broadcom's impressive AI growth is overshadowed by concerns regarding profit margins, leading to a significant decline in stock value despite strong sales performance [1][2]. Financial Performance - In the fiscal fourth quarter, Broadcom reported revenue growth of 28% year-over-year, reaching just over $18 billion, with semiconductor solutions revenue increasing by 35% and infrastructure software revenue by 19% [6]. - AI semiconductor revenue surged by 74% year-over-year in the same quarter, with expectations to double to $8.2 billion in fiscal Q1 2026 [7]. Profitability Concerns - Management indicated that the growing AI segment, while boosting sales, is expected to dilute gross profit margins, projecting a one percentage point decrease in gross margin for fiscal Q1 compared to the previous quarter [8][9]. - Adjusted EBITDA is forecasted to be about 67% of revenue for the quarter, down from 68% in fiscal Q4 [8]. Market Valuation - Broadcom's market capitalization stands at $1.6 trillion, with a forward price-to-earnings ratio of approximately 36, raising concerns about the sustainability of its valuation given the anticipated gross margin pressure [10][12]. - The company generated $26.9 billion in free cash flow in fiscal 2025, returning $17.5 billion to shareholders, including a 10% increase in quarterly dividends to $0.65 per share [10][11]. Investment Outlook - The current stock price around $340 leaves little room for disappointment, suggesting that a more favorable entry point would require either a significant reduction in valuation or several quarters of better-than-expected results [12][13].