Broadcom: Don't Hit The Panic Button

Summary

• Broadcom remains a hold, despite guidance for a minor margin contraction, as AI-driven CapEx and secular demand underpin robust fundamentals.
• AVGO delivered a standout Q4, with $18.0B revenue (+28% Y/Y) and $7.5B free cash flow (+36% Y/Y), demonstrating positive operating leverage and strong capital return potential.
• Short-term margin pressure stems from higher sales of lower-margin AI custom silicon and systems, but AVGO's gross margins outperform those of TSMC and AMD.
• Shares could potentially get cheaper in the short term. I see no reason to change my hold rating for now, as business drivers are fully intact.
• Investors overreacted to a projected 1 PP margin drop on Friday; AVGO's free cash flow growth and dominant AI infrastructure position support continued optimism.