Broadcom stock (NASDAQ: AVGO) plunged about 6.6% in heavy trading on Tuesday as investors digested worries that rapid AI-driven sales could squeeze margins.
Tuesday’s slide took the Broadcom stock price to roughly $309 a share from the prior session’s close near $336, intensifying questions about whether the “AI trade” is beginning to show cracks.
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The immediate trigger for the rout appears to be a replay of concerns first aired after Broadcom’s December guidance.
The investors expressed caution that the booming demand for custom AI processors comes with lower gross margins than the company’s legacy silicon businesses.
That warning has left investors parsing the trade-off between strong top-line growth and compressed profitability.
Reuters noted the earlier margin caveat that sparked a sharp December sell-off and remains the reference point for market angst.
Behind the headline numbers, the company’s large AI order book complicates the picture.
Analysts and reports have repeatedly cited a multi-year AI backlog that supports revenue visibility, but margin mix matters.
A $73 billion backlog can underpin growth while still producing short-term margin pressure if a higher share of revenue shifts into lower-margin custom designs.
That dynamic helps explain why traders have been willing to take profits after a sustained period of gains.
Technical factors also played a role. Hedge funds and momentum traders often add to momentum and unwind positions quickly when volatility spikes.
Taken together, the market move appears to be a combination of renewed margin concerns, profit-taking following a rally, and short-term technical factors.
AI trade and the wider chip complex
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Broadcom’s sell-off is a useful stress-test for the broader AI narrative.
If the move is idiosyncratic: tied to Broadcom’s specific margin mix and product cadence, it’s a warning but not a systemic repudiation of AI exposure across semiconductors.
If other AI-exposed names begin to show similar multiple compression on execution or margin concerns, investors will likely reassess valuations across the sector.
Practical near-term implications include higher volatility around the next corporate data points.
Broadcom is confirmed to report its fiscal first-quarter results on March 4, 2026, an event that will likely determine whether this pullback is a buying opportunity or the start of a longer correction.
Traders should watch guidance on gross margins, customer timing, and whether major hyperscalers alter buying cadence.
A single day’s 6% move doesn’t settle the debate over AI’s returns, but re-focuses attention on margins and execution.
The investors must verify the exact price action, parse management’s gross-margin guidance on March 4, and track whether the weakness spreads to other AI-sensitive chip names.
