"The 'AI Fear Wall' is blocking the way, will Broadcom Inc.'s financial report tonight still fall even if it is good?"

Broadcom Inc. (AVGO.US) will announce its latest quarterly earnings on Thursday morning Beijing time. Wall Street expects the company to report strong profits, but based on recent trading patterns, even surpassing this high bar may not be enough to reverse the stock's months-long slump. The chipmaker's stock has dropped 24% from its all-time high in December last year, far lagging behind the S&P 500 index. This sell-off is part of investors shedding stocks of large tech companies amid concerns about the sustainability of the billions of dollars invested in artificial intelligence research. Broadcom Inc. is the seventh-largest company by market capitalization in the S&P 500 index, with a market value of $1.5 trillion. It is a chip manufacturing partner to Alphabet (GOOGL.US) and other AI giants, and therefore a beneficiary of these massive investments. Although these concerns may materialize in the future, Broadcom Inc. currently appears solid. Analysts expect the company's adjusted earnings per share for the first quarter to increase by 27% year-on-year to $2.03, and revenue to grow by 29% to about $19.3 billion, with AI-related sales nearly doubling to approximately $8.2 billion. If the company also provides encouraging performance outlook, Wall Street professionals will not be surprised. Paul Meeks, director of technology research at Freedom Capital Markets, said, "Broadcom Inc. will surely make a lot of comments, but it may not matter." Looking back at the stock price movements of NVIDIA Corporation (NVDA.US) after last week's earnings report. The chip giant outperformed Wall Street expectations and raised performance guidance due to strong demand for its products and plans for significant capital expenditure by hyperscale data center operators. However, in the following two trading days, NVIDIA Corporation's stock price plummeted by 9.4%, marking its largest two-day decline since April. After Broadcom Inc.'s stock price fell significantly following last December's earnings report, dropping over 11% for its worst performance in nearly a year. The issue lies in a backlog of AI product orders for the next six quarters totaling $73 billion, significantly lower than expected. Investors naturally want to know the latest developments in order status, as well as advancements in the production of tensor processing units (TPUs) chips for Alphabet Inc. Class C by Broadcom Inc. Orders for Alphabet Inc. Class C are expected to significantly increase in the second half of this year. Collaboration with OpenAI is also expected to drive Broadcom Inc.'s business expansion by 2027. Inflection Point: "Deep Moats" Shaon Baqui, senior technology research analyst at Janus Henderson, said, "For them, emphasizing their true expertise in designing large custom chips is crucial, as they have the successful experience of seven generations of TPUs for Alphabet Inc. Class C. This generational capability is very important, especially in competition with NVIDIA Corporation." The company holds shares of Broadcom Inc. He added, "Manufacturing these giant AI acceleration chips is really difficult. I think Broadcom Inc. should emphasize that they have a very strong competitive advantage in this area." Another issue mentioned in the previous earnings report from Broadcom Inc. is profit margins, with CEO Hock Tan stating that sales of AI business have dragged down profit margins. The first quarter's adjusted gross margin for Broadcom Inc. is expected to be around 77%, lower than the previous quarter's 78% and the same period last year's 79%. Analysts may question the company's software business, which accounted for 42% of its total revenue in 2025. This segment has been seen in the past as a way to balance the cyclical fluctuations in semiconductor sales, but recent sell-offs in software stocks have weighed on the stock. Meeks of Freedom Capital said, "It will be interesting to see how they report and how they guide the development of this particular area. They obviously need to directly answer questions about how they view this business, which was once an important source of diversified investments for them. Now, in the age of AI, it is seen as a huge burden." The recent selling pressure on Broadcom Inc.'s stock indeed resulted in a price drop. However, there may still be room for further decline in its stock price. Currently, Broadcom Inc. has a price-to-earnings ratio of around 27 times, lower than its peak of 42 times in December last year, but still significantly higher than its five-year average of 22 times. Furthermore, Broadcom Inc.'s P/E ratio is also higher than its competitor NVIDIA Corporation's 21 times. Options traders are betting on sharp price fluctuations after the earnings release, with an expected price swing of about 7% post-earnings. Three things could boost the stock price: announcing significant revenue contributions from additional large-scale customers, a substantial increase in AI backorders during the same period, and positive comments from Tan regarding deals with OpenAI and Anthropic. However, given the recent bearish market sentiment, even this may not be enough to trigger an increase in Broadcom Inc.'s stock price. Analysts said, "It seems the better the performance, the worse the stock price performance. At least in this earnings season."