Tech giants Broadcom and Super Micro both posted record demand numbers inside a week of each other, yet both stocks sold off because of the same underlying margin misses.
Two of the most closely tracked names in U.S. AI infrastructure posted strong demand figures in the same week, and the market sold both off for reasons that had nothing to do with their order books.
Broadcom (NASDAQ: AVGO) reported fiscal Q2 results on June 3, carrying record quarterly revenue of US$22.2 billion alongside a 143% year-on-year jump in AI semiconductor sales to $10.8 billion.
Management raised its forward target to place the chipmaker on course for more than $100 billion in AI chip revenue by fiscal 2027, against a full-year guide of $56 billion for fiscal 2026.
AVGO shares fell 12.6% in the following session, signalling that the guidance had landed short of what some investors had built into the price.
Super Micro Computer (NASDAQ: SMCI) followed on June 9 with a plan to raise $7 billion through equity and equity-linked financing to fund component purchases behind a server backlog worth roughly $39 billion, assembled from orders placed by more than 20 customers across a matter of weeks.
Over two trading sessions, the stock shed nearly 28%, wiping approximately $12 billion from the company's market capitalisation as investors processed the dilution scale.
Both disclosures carried the same admission: filling AI infrastructure orders at the pace the largest cloud operators now require comes with a capital cost the market had not yet fully priced.
Broadcom's margins
Broadcom's Q2 numbers left little room for complaint - revenue of $22.2 billion growing 48% year-on-year, operating margin at a record 67%, and adjusted EBITDA at 69% of revenue.
AI semiconductor bookings exceeded $30 billion during the quarter against $10.8 billion actually shipped, and the chipmaker guided Q3 AI revenue to $16 billion, representing more than 200% year-on-year growth.
The full-year AI semiconductor target was reaffirmed at $56 billion, implying approximately 180% growth from fiscal 2025, with fiscal 2027 flagged as a potential $100 billion-plus year for chip sales alone.
The friction was in the gross margin guidance - Q3 directed to approximately 74%, down from roughly 77% in the prior period, as AI chips account for a rising share of total sales.
On the earnings call, Tan placed the cause squarely on product mix, not chip pricing or manufacturing costs.
"Semiconductor margins remain very stable and very solid - it's the mix, particularly the mix between software and non-AI to the very, very rapidly growing AI semiconductor, that is just diluting gross margin," Broadcom president and CEO Hock Tan said.
Custom AI accelerators carry lower gross margins than the chipmaker's networking products and its infrastructure software arm, which posted a 93% gross margin in Q2.
The faster AI silicon takes share of total turnover, the more the blended gross margin narrows - and the trend compounds with every quarter.
Citi maintained its buy rating post-earnings but flagged customer concentration as a secondary risk, estimating Broadcom derives between 35% and 40% of its revenue from a single buyer: Google.
Tan acknowledged on the same call that Google would likely draw on multiple chip suppliers over time, adding a concentration overhang to the margin erosion narrative without softening either concern.
The chipmaker also reversed its prior plan to supply complete integrated AI systems, with Tan confirming a chips-only scope - curtailing both execution exposure and addressable margin in one move.
Super Micro's $39 billion backlog
Super Micro's position differs from Broadcom's in its mechanics, but the underlying tension is recognisably similar - order flow is climbing sharply, and the capital required to discharge it is outpacing what internal operations can generate.
The San Jose-based assembler builds liquid-cooled rack-scale AI server systems predominantly around Nvidia GPU hardware, competing on lead time and configurability rather than the proprietary chip economics that accrue to designers upstream.
Gross margins in Q3 FY2026 came in at 9.9%, up from 9.3% in the prior period - thin by any technology sector standard, and a base that amplifies the working capital burden of filling large orders at pace.
A sub-10% gross margin assembler against a $39 billion order book needs sizeable working capital before a dollar of revenue hits the income statement - the raise was operational necessity, not opportunism.
The $7.0 billion arrangement splits into a $5.0 billion underwritten offering and a $2.0 billion at-the-market programme, with the latter expected to begin no earlier than Q3 2026.
The underwritten tranche comprises approximately $1.25 billion in common stock and $3.75 billion in depositary shares linked to Series A mandatory convertible preferred stock, with J.P. Morgan, Goldman Sachs, and Citigroup acting as lead bookrunners on the deal.
The preferred stock converts automatically into common shares on or around June 1, 2029, with Supermicro intending to list the depositary shares on Nasdaq under the ticker SMCIP.
Trading volume on June 10 reached 184 million shares - approximately 316% above the three-month average - as the dilution calculus landed across one of the calendar year's sharper-performing technology names.
Revenue in the most recently reported quarter reached $10.2 billion, up from $5.0 billion a year earlier - the procurement cycle is real, and the dilution is the price of keeping pace with it.
Q2 FY2026 operating cash flow was negative $24 million, which is exactly why a $39 billion order book does not plug a working capital shortfall without a raise of this scale.
Dell Technologies carries server gross margins above 20%, a differential analysts have cited consistently as the clearest benchmark for Super Micro's margin gap against the integrated OEM tier.
The connection
Both sell-offs point to the same dynamic - the AI buildout is generating record order volumes, while the margin profiles of the companies converting those bookings into shipped hardware thin at both ends of the chain.
For Broadcom, the issue is revenue mix - AI semiconductor income approaching 49% of total sales is eroding the proportional weight of the higher-margin software and networking lines that anchored the blended rate.
For Super Micro, the bind is working capital intensity - a sub-10% gross margin assembler against a $39 billion backlog has no practical route to funding component procurement other than shareholder dilution at scale.
Order appetite is not the concern - Broadcom logged $30 billion in Q2 AI chip orders against $10.8 billion shipped, a gap pointing to substantial fulfilment runway well into fiscal 2027 for both names.
The question the market is pricing now is whether either margin structure can sustain valuations built on revenue assumptions approaching their fiscal 2027 ceiling.
What to watch:
- Broadcom Q3 earnings (approximately September 2026): the 74% gross margin guide is the critical line - any further narrowing as AI chip mix expands confirms the erosion is entrenched rather than transitional.
- Super Micro Q4 FY2026 results: the first read on whether the $39 billion backlog converts at the guided pace, and whether gross margins hold above 9.9% toward management's double-digit target.
- Google supplier diversification: the pace at which Alphabet diversifies its custom chip supply affects Broadcom's concentration risk directly - any signal in upcoming capex disclosures carries outsized read-through for AVGO.
- SMCIP preferred listing: once listed, the depositary shares offer a live read on investor confidence in Supermicro's 2029 conversion mechanics and the equity overhang sitting above the common stock.
- Nvidia GPU allocation: any tilt toward Nvidia's own DGX systems or ODM-direct arrangements over independent OEMs would constrain Super Micro's component access and compound existing margin pressure.
Base case: Both companies execute on guidance, mega-cap data centre operators sustain their current capex trajectory, and margin erosion stabilises as revenue mix normalises across the second half of calendar 2026.
Bull case: Super Micro's Data Center Building Block Solutions segment - currently running net margins above 20% against a consolidated net margin near 3% - scales toward management's double-digit profit contribution target by end of calendar 2026, delivering the re-rating catalyst the market has been anticipating; Broadcom's operating margin discipline holds even as gross margin narrows.
Bear case: Hyperscaler pricing leverage tightens as Dell and HPE ramp competing rack-scale offerings, SMCI gross margins slide toward mid-single digits, and Broadcom's Google concentration risk materialises faster than priced - the scenario in which both revenue and margin disappoint in the same reporting window.
