Broadcom’s Contrarian Performance: Why the Stock Slipped Despite Record Earnings and AI Momentum

Broadcom Inc. (AVGO) has long been a poster child for the AI infrastructure boom, with its custom-designed semiconductors and software solutions powering the next generation of data centers. Yet, despite reporting record Q3 fiscal 2025 earnings—projected to hit $15.8 billion in revenue and $1.66 per share, with AI semiconductor revenue surging 60% year-over-year to $5.1 billion—the stock fell 3.1% in early September 2025 [1]. This apparent contradiction underscores a broader debate in the sector: Are the valuation multiples of AI infrastructure leaders like Broadcom, NVIDIA, and Marvell still grounded in reality, or are investors overreaching in their optimism?

Earnings Momentum vs. Market Realism

Broadcom’s Q3 results reflect its dominant position in the AI hardware-software stack. Its AI semiconductor revenue, driven by custom XPUs for hyperscalers like Google and Microsoft, has grown at a blistering pace, while infrastructure software revenue (including VMware) is on track to reach $6.7 billion, up 16% year-over-year [1]. The company has also outperformed earnings estimates for four consecutive quarters, a testament to its pricing power and strategic acquisitions [2].

However, the stock’s decline amid these results highlights a growing disconnect between fundamentals and market sentiment. “Broadcom’s earnings are a masterclass in execution, but the market is pricing in perfection,” noted a JPMorgan analyst in a recent report [3]. The stock’s forward P/E ratio of 34x and EV/EBITDA of 49.35x [1]—while impressive for a hardware company—now rival those of software peers, which typically trade at higher multiples due to recurring revenue models. This premium is justified by Broadcom’s 78.2% gross margin and VMware’s 44% revenue contribution [1], but it raises questions about sustainability.

Sector-Wide Valuation Pressures

The AI infrastructure sector is experiencing a valuation tug-of-war between growth optimism and macroeconomic caution. NVIDIA (NVDA), the sector’s bellwether, trades at a trailing P/E of 58x and a P/S of 30x [4], reflecting its CUDA ecosystem’s dominance in AI training. Marvell Technology (MRVL), meanwhile, has seen its forward P/E drop from 80x in early 2025 to 22.32x in Q3 2025 [5], illustrating a sector-wide correction as investors reassess growth trajectories.

Broadcom’s valuation sits between these extremes. Its P/S ratio of 25.17 [1]—higher than hardware peers but lower than software companies—reflects investor confidence in its hybrid model. Yet, this confidence is fraying. A 21% drop in Broadcom’s website visitors and insider selling activity have fueled concerns about slowing demand [2]. Meanwhile, the broader market’s sensitivity to Federal Reserve policy—particularly fears of rate hikes—has led to profit-taking in high-growth tech stocks, dragging down even strong performers like Broadcom [3].

The Contrarian Case

The stock’s dip, while painful for bulls, may signal a more realistic valuation for AI infrastructure companies. Broadcom’s AI semiconductor segment, projected to account for 40% of revenue by 2026 [1], is undeniably transformative. However, its VMware integration risks and rising production costs could temper long-term margins [5]. For investors, the key question is whether the current multiples—34x forward P/E and 25x P/S—adequately discount these risks.

NVIDIA’s 58x P/E, by contrast, assumes unbroken dominance in AI accelerators, a scenario that could falter if open-source alternatives gain traction. Marvell’s corrected valuation, while more conservative, reflects its exposure to flat data center revenue growth [5]. In this context, Broadcom’s 34x P/E appears relatively balanced, but only if its AI revenue growth continues to outpace the sector.

Conclusion

Broadcom’s Q3 earnings reaffirm its status as an AI infrastructure leader, but the stock’s decline is a reminder that even the strongest companies are not immune to valuation realism. As the sector navigates macroeconomic headwinds and integration challenges, investors must weigh the promise of AI-driven growth against the risks of overvaluation. For now, Broadcom’s hybrid hardware-software model and recurring revenue from VMware offer a compelling case for long-term optimism—but only if the market’s current enthusiasm proves to be a floor, not a ceiling.

Source:
[1] Buy, Sell or Hold AVGO Stock: Key Tips Ahead of Q3 Earnings? https://finance.yahoo.com/news/buy-sell-hold-avgo-stock-173800661.html
[2] Broadcom Q3 Preview: Be Fearful When Others Are ... https://seekingalpha.com/article/4818632-broadcom-q3-preview-be-fearful-when-others-are-greedy-rating-downgrade
[3] Broadcom Earnings: Analysts Bullish on AI Revenue Beat https://www.indexbox.io/blog/broadcom-q4-earnings-preview-ai-revenue-in-focus
[4] Nvidia NVDA Stock Statistics 2025: Performance, Growth, etc. https://coinlaw.io/nvidia-nvda-stock-statistics/
[5] Marvell: A High-Growth AI Powerhouse Heading Into 2025 https://seekingalpha.com/article/4750605-marvell-a-high-growth-ai-powerhouse-heading-into-2025