I Found the Real Reason Why Broadcom Stock Crashed After Earnings | AVGO Stock Deep Dive Part 4

Parkev Tatevosian, CFA•Jun 12, 2026

Summary

Parkev conducts a deep dive into Broadcom stock, analyzing the significant price drop following its recent quarterly financial results. He identifies two main drivers for investor disappointment: a forecast for declining gross profit margins and the management's decision to reiterate its 2027 AI revenue forecast without an upgrade.

Parkev explains that the projected decline in Broadcom's consolidated gross margin to approximately 74% is a result of a changing product mix. As the proportion of AI revenue (which is tied to the lower-margin semiconductor segment) significantly grows, it naturally brings down the overall gross margin, distinct from the highly profitable software segment. He clarifies that this is not indicative of structural issues or discounting but rather a common phenomenon in companies with diverse product offerings, comparing it to:

**Broadcom (AVGO):** Parkev believes the underlying quarterly results were "fantastic," despite investor disappointment. He attributes the stock's sharp decline (over 11% in five days, from $500 to $387 over the past month) to excessively high market expectations that preceded the earnings call. The management's reiteration of the 2027 AI revenue target of over $100 billion, instead of raising it as investors hoped, also contributed to the sell-off. Parkev emphasizes that the more critical operating margin is expected to remain stable at 67%, and despite the recent fall, the stock is still up over 52% year-over-year, suggesting an overreaction.

**Apple (AAPL):** Apple serves as a comparative example to illustrate the impact of product mix on profit margins. Parkev notes that Apple generates double the gross profit margin from its services revenue compared to its hardware revenue. This highlights how different segments within a company can have varying profitability, explaining why Broadcom's overall gross margin might decline even with robust revenue growth due to a shift towards lower-margin products.

Parkev concludes that the market's expectations had grown "fantastically large," requiring increasingly exceptional quarterly results to sustain the stock price. The recent correction, therefore, stemmed from unmet, outsized expectations rather than a deterioration in Broadcom's fundamental performance.

Mentioned Stocks

AVGO

Sentiment: BUY

Reasoning: Parkev attributes the recent significant stock price drop (down over 11% in 5 days, from $500 to $387 over the month) to investor overreaction and unrealistic expectations. He explains that the announced decline in gross profit margin to 74% is not a structural issue or a result of discounting, but rather a consequence of a changing product mix as the higher-growth AI segment (based on semiconductors) has lower margins than the highly profitable software segment. He emphasizes that the more critical operating margin is expected to remain stable at 67%. Furthermore, investor disappointment stemmed from management's reiteration of the 2027 AI revenue forecast of over $100 billion, instead of raising it to a higher figure like $110 billion or $125 billion, which the market had come to expect. Parkev believes the underlying quarterly results were "fantastic" and that the stock's pre-earnings rally had pushed expectations to unsustainable levels, making it difficult for the company to satisfy them, even with strong performance. He also notes that despite the recent fall, Broadcom stock is still up over 52% over the previous year.

Loading chart...

AAPL

Sentiment: HOLD

Reasoning: Apple is mentioned as an example to illustrate how companies with both hardware and software segments can experience different profit margins. Parkev notes that Apple generates double the gross profit margin from its services revenue compared to its hardware revenue. This comparison is used to support his explanation that Broadcom's declining gross margin is due to its product mix shift (more semiconductor-related AI revenue, less high-margin software) rather than a fundamental problem or discounting.

Loading chart...