The AI Infrastructure Correction: Is Now the Time to Buy the Dip in Broadcom and Oracle?

The AI infrastructure sector, once a poster child for high-growth tech investing, is undergoing a painful realignment. As of November 2025, investors are recalibrating their expectations for companies like Broadcom and Oracle, which have led the charge in AI-driven revenue expansion but now face mounting scrutiny over valuation sustainability and margin pressures. This article examines whether the recent pullback in these stocks represents a compelling buying opportunity or a warning sign of overextended fundamentals.

The AI Growth Story: Strong Revenue, Weak Margins

Broadcom and Oracle have both demonstrated robust AI-related revenue growth. Broadcom's fiscal Q4 2025 results highlighted a 74% year-over-year surge in AI semiconductor revenue to $6.5 billion, driven by demand for its custom chips. Similarly, Oracle's cloud infrastructure revenue grew 68% year-on-year in fiscal Q2 2026, underscoring its role in AI infrastructure according to industry analysis. However, these gains come at a cost.

Broadcom has warned of margin compression as it shifts toward selling integrated rack-scale AI systems, which include third-party components and dilute gross margins. Its Q1 2026 gross margins are projected to decline by 100 basis points, while its effective tax rate is expected to rise to 16.5%. Oracle, meanwhile, has seen operating margins contract amid a $15 billion increase in fiscal 2026 capital expenditures, much of it tied to AI infrastructure according to financial reports. Both companies now face a critical question: Can their AI investments translate into durable profitability, or are they sacrificing margins for short-term growth?

Valuation Metrics: Premiums vs. Realities

Broadcom's valuation remains stretched despite its recent stock decline. As of November 2025, the company trades at a forward P/E ratio of 85.5x, far exceeding the semiconductor industry average of 33.6x and its peer group average of 58.2x according to market analysis. Its projected P/B ratio of 21.2x and EV/EBITDA ratio of 39.8x for fiscal 2025 further highlight the premium investors are paying for its AI-driven growth according to financial forecasts. Oracle, while less extreme, has also seen its valuation metrics rise above historical norms. Its 5-year average P/E ratio is 31.07, yet its current multiple reflects heightened expectations for AI-related returns according to financial data.

These premiums are increasingly at odds with fundamentals. Oracle's 11–14% stock drop following its Q2 2026 earnings report and revised capital expenditure guidance signaled investor skepticism about the ROI of its AI investments according to financial reports. Broadcom's shares similarly fell over 11% after its Q4 2025 results, as margin pressures and customer concentration risks-particularly its reliance on clients like Google-came under scrutiny according to investor analysis.

The Broader Market Reevaluation

The selloffs in Broadcom and Oracle reflect a broader market reevaluation of AI infrastructure stocks. Investors are now demanding clearer evidence that capital-intensive AI projects will deliver long-term returns rather than erode margins. For example, Oracle's $523 billion backlog of performance obligations and Broadcom's $73 billion AI-related backlog are impressive on paper, but their monetization timelines remain uncertain according to financial data. Additionally, Oracle's delayed data-center projects for OpenAI and Broadcom's reliance on custom chips for a few major clients introduce execution risks that could further pressure valuations according to industry reports.

Is Now the Time to Buy the Dip?

The current correction in Broadcom and Oracle offers a mixed picture. On one hand, both companies remain pivotal in AI infrastructure: Broadcom's semiconductor expertise and Oracle's cloud services are hard to replicate. On the other, their valuations still appear overextended relative to historical averages and industry peers. For instance, Broadcom's forward P/E of 85.5x is nearly double its 5-year EV/EBITDA average of 33.69% according to financial data, suggesting a disconnect between market optimism and operational realities.

Investors considering a "buy the dip" strategy must weigh these factors. While the pullback may reflect an overreaction to near-term margin pressures, it does not necessarily indicate undervaluation. A more compelling entry point would require a sustained improvement in operating margins, clearer monetization timelines for AI projects, and a re-rating of valuation multiples closer to industry averages. Until then, the AI infrastructure correction remains a cautionary tale about the risks of extrapolating growth without profitability.

Conclusion

The AI infrastructure sector is at a crossroads. Broadcom and Oracle's recent struggles highlight the challenges of balancing aggressive capital spending with margin preservation and long-term ROI. While their foundational roles in AI infrastructure suggest they will remain relevant, the current valuation premiums may not justify the risks. For now, the dip appears more reflective of a market recalibration than a buying opportunity-unless fundamentals align with the optimism embedded in their multiples.