AI Hardware's Profitability Challenge: Jabil's Buy Zone vs. Broadcom's Margin Woes

The AI hardware boom is reshaping the tech landscape, but not all players are created equal. As investors, we must ask: Are these companies building sustainable profitability, or are they chasing growth at the expense of margins? Let's dissect the contrasting stories of Jabil and Broadcom-two key players in the AI hardware space-to assess the quality of their AI-driven growth.

Broadcom: A Growth Story with Margin Headwinds

Broadcom's Q3 2025 results were nothing short of explosive. The company reported record revenue of $16.0 billion, with its AI semiconductor segment surging 63% year-over-year to $5.2 billion. This growth is fueled by demand for custom accelerators (XPUs) and AI data center components, with management projecting a jump to $6.2 billion in Q4. On the surface, this looks like a winner-eleven consecutive quarters of AI semiconductor growth, a $10 billion XPU order backlog and a $110 billion consolidated backlog.

But here's the rub: profitability is under pressure. While AI semiconductor operating margins hit 57% in Q3, Broadcom warns of a 70-basis-point sequential decline in consolidated gross margins in Q4 due to a higher mix of XPUs and wireless components. These products, while critical for scaling AI infrastructure, come with lower margins compared to traditional semiconductors.

Management expects adjusted EBITDA to remain stable at 67% of revenue, but this hinges on operating leverage-something that could falter if margin compression accelerates.

Broadcom's infrastructure software segment, which grew 17% to $6.8 billion, offers a counterbalance. With gross margins of 93% and operating margins at 77%, this business is a cash-cow. Yet, the semiconductor segment's margin challenges could drag on overall profitability. For investors, the question becomes: Is Broadcom's AI growth worth the margin trade-off?

Jabil: A Buy Zone with Prudent Margins

Jabil's story is quieter but no less compelling. In Q3 2025, its AI hardware segment (part of the Intelligent Infrastructure division) generated $3.4 billion in revenue-44% of total revenue-and grew 51% year-over-year. This segment's core operating margin of 5.3% may pale next to Broadcom's 57%, but it reflects a different strategy: scaling AI infrastructure without sacrificing margin stability.

Jabil's focus on manufacturing and integrating AI hardware for cloud and data centers has paid off. The company expects AI-related revenue to hit $8.5 billion for FY2025, a testament to its role in enabling AI adoption. What's more, its non-GAAP net income of $279 million (or $2.55 per share) in Q3 shows that profitability isn't an afterthought.

Unlike Broadcom, Jabil isn't chasing the most glamorous AI components-it's building the factories and systems that bring AI to life. This approach limits exposure to margin-sapping product shifts and positions Jabil as a "buy zone" for investors seeking steady, scalable growth.

The Bottom Line: Quality Over Hype

The AI hardware race isn't just about who sells the most chips-it's about who can sustain margins while scaling. Broadcom's dominance in AI semiconductors is undeniable, but its margin pressures highlight the risks of over-reliance on high-growth, low-margin segments. Jabil, meanwhile, offers a more balanced playbook: leveraging AI demand without compromising profitability.

For the average investor, this means tilting toward Jabil's disciplined growth while keeping a watchful eye on Broadcom's margin trends. AI is here to stay, but the companies that thrive will be those that prioritize both revenue and profit.