Can Broadcom's AI semiconductor boom offset mounting margin pressure in Q1 2026?

When is Broadcom reporting earnings?

Broadcom is scheduled to release its first-quarter (Q1) fiscal year (FY) 2026 results on Wednesday 4 March, after market close. The earnings conference call will commence at 5.00pm Eastern Time (ET).

Q4 record revenue and AI acceleration

Broadcom closed FY 2025 on a strong note, with Q4 revenue reaching a record $18.0 billion -- a 28% year-over-year (YoY) increase that exceeded analyst expectations of $17.4 billion. Non-GAAP diluted earnings per share (EPS) came in at $1.95, topping consensus estimates of $1.86. For the full FY, consolidated revenue grew 24% to $64 billion, underpinned by two key growth pillars: artificial intelligence (AI) semiconductors and VMware.

AI semiconductor revenue surged 74% YoY to $6.5 billion in the quarter, with the full-year figure reaching $20 billion -- a 65% YoY increase that now accounts for more than half of total semiconductor revenue. Broadcom's custom AI accelerators, known internally as XPUs, have attracted a growing roster of hyperscale customers. During the Q4 earnings call, chief executive officer (CEO) Hock Tan confirmed a fifth XPU customer had been secured with an initial $1 billion order. He also revealed that Anthropic -- the previously unnamed fourth customer -- had placed an additional $11 billion order for delivery in late 2026, following a $10 billion order received in Q3. Total AI backlog now stands at $73 billion, expected to be delivered over the next 18 months.

The infrastructure software segment, largely powered by the 2023 VMware acquisition, delivered Q4 revenue of $6.9 billion, up 19% YoY, with strong bookings of $10.4 billion. Software gross margin reached 93% and operating margin improved to 78%, reflecting robust adoption of VMware Cloud Foundation (VCF). Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) for FY 2025 grew 35% to a record $43.0 billion, while free cash flow reached $26.9 billion -- up 39% YoY.

Despite robust results, Broadcom shares fell sharply following the earnings call. The primary catalyst for the selloff was a margin warning from chief financial officer (CFO) Kirsten Spears, who guided Q1 gross margin to decline approximately 100 basis points (bp) sequentially, attributed to a higher mix of AI revenue. Investor concerns were further compounded by the high degree of revenue concentration among a limited number of hyperscale customers.

Q1 revenue trajectory intact, but margin pressure mounts

Analyst consensus reflects expectations for sustained revenue momentum, primarily driven by continued expansion in the AI semiconductor segment. Profitability, however, is anticipated to come under pressure as the growing contribution of lower-margin, full rack-scale AI solutions weighs on overall margins as FY2026 progresses.

Below are the analysts' estimates based on LSEG data:

Source: LSEG, as of 24 February 2026

What to watch for in the Q1 earnings call

Investors will focus on several critical areas during the announcement:

AI revenue delivery and doubling guidance

Management guided Q1 AI semiconductor revenue of $8.2 billion, representing a near doubling YoY. Investors will scrutinise whether this guidance is met and whether momentum across custom AI accelerators and ethernet AI switches -- particularly Broadcom's Tomahawk 6 switch, capable of 102 terabits per second -- justifies the multi-year capital expenditure (capex) commitments hyperscalers are making. The AI switch backlog alone exceeded $10 billion at the end of Q4, pointing to robust near-term demand.

Gross margin trajectory

The 100-bp sequential decline in gross margin flagged for Q1 has emerged as the central concern for the bull case. As system-level AI deliveries grow as a share of revenue, investors are seeking clarity on whether Broadcom can manage margin dilution while continuing to expand operating income.

Customer concentration and pipeline expansion

Broadcom's AI backlog is currently concentrated among just five customers, a level of exposure that introduces meaningful revenue risk should any single hyperscaler slow its deployment pace or pivot to an in-house solution. Any disclosure of progress with new prospects would be closely monitored. The pace at which the backlog converts to shipped products and recognised revenue will also be a focal point.

VMware stickiness and software growth

Infrastructure software is expected to grow at 3% YoY, reflecting normal seasonal softness in renewals. Investors will look for continued VCF adoption and management commentary on medium-term growth, given VMware's role as the stable, high-margin, cash-flow engine funding Broadcom's AI investment cycle. A nascent risk worth monitoring: Anthropic's recent enterprise AI tools targeting legal, financial and legacy code modernisation workflows have unsettled software sector investors more broadly. VMware's deep integration into enterprise information technology (IT) infrastructure makes near-term displacement unlikely, but any signs of budget pressure at renewal could test the durability of Broadcom's software story.

Analysts' optimistic target

Wall Street analyst sentiment remains highly constructive, with only two 'hold' ratings and no 'sell' ratings among 52 analysts covering the stock. The average 12-month target price has risen from $390 ahead of the Q4 FY2025 earnings release to $452 -- representing approximately 37% upside from current levels.

Wall Street analyst estimates

Share price at critical technical juncture

Following an impressive rally of 199% from its April low, Broadcom's share price has retreated more than 20% from its December peak. The stock is approaching a level that has provided support on multiple occasions over the past six months, near $320. Both the 20-day and 100-day moving averages (MA) are broadly flat, signalling a lack of near-term directional conviction.

A positive earnings surprise could catalyse a clear breakout from the current consolidation phase, with the share price potentially targeting the 100-day MA near $350. Conversely, a disappointing result could push the share price below the immediate support at $320, with the 200-day MA at $316 serving as the next downside reference.

Based on the latest options market pricing for contracts expiring on 6 March, the implied move stands at +/- 11% from current levels.

Broadcom daily price chart

• _{This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}