After releasing its last earnings report, shares of custom artificial intelligence (AI) chip designer Broadcom (NASDAQ: AVGO) have been range-bound. The stock dropped from over $400 to around $340 over just a few days in mid-December of 2025.
Shares recovered to around $355 in mid-January, only to drop to under $310 by early February. With a little more than a week until Broadcom releases the first earnings report of its fiscal year (FY) 2026, shares are hovering around $330.
Broadcom’s December report prompted investors to express concern about something the company is known to excel at: margins. Without any game-changing developments since then, it seems these concerns have lingered, leaving markets unsure about what to do with AVGO shares.
Let’s preview the company’s upcoming report and detail the key metrics and potential commentary markets will be watching. Broadcom will release its Q1 FY2026 report on Wednesday, March 4, after the market close.
AVGO: Prolific at Meeting or Beating Headline Estimates
Currently, the Wall Street consensus estimate for Broadcom’s Q1 FY2026 revenue is $19.1 billion. This would represent a 28% year-over-year growth rate. This estimate is essentially the same as the “approximately $19.1 billion” in revenue Broadcom itself guided for.
On adjusted earnings per share (EPS), the consensus forecast is $2.03. This would represent an approximately 26% growth rate. Note that Broadcom does not specifically provide adjusted EPS guidance.
Broadcom’s guidance is typically conservative, making it likely that the firm will meet or exceed estimates on these metrics.
The company has met or beaten sales estimates in 22 out of its last 24 earnings reports and met or beaten adjusted EPS estimates on 23 of those occasions.
Still, especially for a stock like Broadcom, which has surged over the past several years, beating headline estimates does not mean shares will rise in response. Additionally, there is always the potential for an unforeseen issue to cause a miss.
The company’s Q2 FY2026 guidance, margins, and management commentary will all be key to whether shares move up or down after the report. For Q2 FY2026, sales estimates currently sit at $20.35 billion (approx. 36% year-over-year growth). Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin estimates, which Broadcom provided guidance for, sit at 68.5% for Q2 FY2026.
In Focus: AVGO’s Gross Margin Performance and Outlook
The largest concern arising from Broadcom’s last earnings report was the trajectory of its gross margin. Last quarter, Broadcom’s gross margin was almost 78%, one of the highest among all U.S. large-cap chip stocks.
However, Broadcom said during its last call, “we expect Q1 consolidated gross margin to be down approximately 100 basis points sequentially, primarily reflecting a higher mix of AI revenue. As a reminder, consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and semiconductors and also product mix within semiconductors.”
Stated more simply, AI sales have lower gross margins than non-AI sales. Because AI sales are growing faster than the rest of the business, overall gross margins will come down.
Based on this quote, investors will want to see Broadcom report gross margins near 77% or better. Analysts on the call will likely also be looking for more concrete information around how much further gross margins will fall over the rest of the year.
Analysts Continue to See Strong Upside in AVGO Shares
Leading up to the report, Wall Street analysts are generally sticking to their bullish outlooks on Broadcom. The consensus price target on AVGO sits near $433, implying approximately 30% upside. Targets updated after the firm’s December 2025 report are moderately higher, averaging around $458. This figure implies approximately 38% upside in shares.
Aside from Citigroup recently lowering its target from $480 to $458, MarketBeat has not tracked any analysts who dropped their AVGO target after the December report. This sits in stark contrast to Broadcom’s price action, with shares down over 15% since the last reporting.
This difference largely stems from analysts being considerably less worried about Broadcom’s gross margin than investors. At the end of the day, even if gross margins decline meaningfully, Broadcom expects its operating margin to only come down “a bit."
As operating margin accounts for more costs than gross margin, it is a better representation of the company’s overall profitability profile.
Additionally, if sales spike due to a gross margin haircut, but operating margin stays relatively steady, absolute profits can grow impressively.
If gross margin haircuts start to erode operating profit margins significantly, there could be a real reason for concern. At this point, the evidence to support such a forecast is weak. However, analysts and investors alike will certainly be looking for information that provides clarity around this issue in Broadcom’s fast-approaching report.
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The article "AVGO Earnings Are Just Around the Corner—Here's What to Watch" first appeared on MarketBeat.
