Earnings Review: Broadcom and Costco

Kevin W. Frisz
Dec 12, 2025
5 min read

December 12, 2025

Summary

Stocks are down -1.1% today led by AI. You wouldn’t know it, but we actually hit an all-time high yesterday! It was due to old-school financial and industrial stocks. As mentioned yesterday, Fed Chair Powell has a reasonably positive outlook for GDP growth next year. That seemed to be the “all clear” sign to buy the cyclical stocks – ie, banks and manufacturers. Well, okay.

Different story today though! Broadcom (AVGO) earnings and a rumor out of Oracle are clobbering tech stocks. As regular readers know, AI-related stocks now account for about 30% of the index. (Even more, depending on how you count it.) So the whole market is falling with them.

The S&P 500 is -1.1%. The tech heavy Nasdaq 100 is -1.8%. The AI basket is -4.2%! Yeesh.

Elsewhere, we’ve got earnings from Costco (COST). Costco is not the sexiest of stocks in the market. But similar to Walmart, Costco has outperformed the index consistently over the past 3, 5, 10 years. So, we’ll go through their results too.

Broadcom (AVGO)

Tech stocks were already down this morning due to Broadcom’s earnings. But around 11am this morning, a rumor hit Bloomberg that Oracle is pushing out a few planned data centers into 2028 instead of 2027. (That’s not good.) The stated reason is “lack of labor and materials”. Is that actually the reason? Who knows. But it’s fire on the fears that all of this AI infrastructure growth is unsustainable. And that’s bringing down everyone.

This Oracle rumor is new-news this morning. But Oracle also ruined the mood yesterday (see: “Oracle Rides the Struggle Bus”).

“And you said something about Broadcom?”

We got Broadcom (AVGO) earnings last night. Broadcom is a massive company – the 6th largest stock in the whole index. Unlike Oracle, Broadcom’s results were pretty good. But the CEO’s comments around backlog are being interpreted negatively this morning. So that sent the shares down 10%ish, even before the Oracle rumor dropped.

“What does Broadcom do exactly?” Oof. Well, a lot of things actually. Broadcom is a bit of a Frankenstein monster assembled by its legendary, mad-genius CEO Hok Tan. But the street breaks it into three big buckets:

(1) AI-related semiconductors,

(2) non-AI-related semis, and

(3) software.

As you might imagine, the “AI-related semiconductor” segment is the juice. That piece grew 74%(!) last quarter, which was better than expected. Broadcom got a lot of attention recently for being Google’s partner in the development of its new “TPU” AI chips, which are trying to compete with Nvidia’s “GPU” AI chips.

Guidance for next quarter was strong too. Buuut… Hok ruined the party on the earnings call. He quoted a backlog (ie, the total amount of orders booked) of “only” $73 billion over the next 18 months. Some investors are converting that into revenue expectations of $50 billion over the next year. And that would be weaker than expected. But the reality is that not all revenues are booked this early. I guess when your stock is up 112% over the past year, you no longer get the benefit of the doubt!

I still like AVGO. They have a good mix of well-positioned assets, namely custom silicon for AI buildouts. And the revenue growth there is accelerating. The primary risk of course is the sustainability of AI industry-wide spending. For now at least, we are still going full speed.

Costco (COST)

Costco reported strong quarterly results last night. Same-store-sales grew 6.4%, and online sales grew 20.5%. Similar to Walmart, the growth engine of the company is now on the online side of the business.

Importantly, membership fees grew 13.9% versus last year. This is the key differentiator for Costco. The membership fees are only 2% of total revenue. But they are 51%(!) of pretax income. Since they sell the actual goods for small profit margins, and since the membership fees drop right to the bottom line, the profits from membership fees are over half of the total profit of the company. When you think about that, you’ll view this company very differently. This is a steady stream of highly-recurring and growing earnings for the company. It’s not nearly as cyclical as other normal retailers.

Interesting anecdote. Costco is using AI in its in-house pharmacy business to better predict when certain medications will be needed at which stores. The point is to lessen the amount of expiring inventory. And it worked! It contributed 0.2% to gross margins this quarter.

The stock has been having a tough year - down 2% YTD. That’s because the stock’s valuation apparently overshot in 2023 and 2024, when its PE multiple rocketed to well over 50x. Results in the business are still good. But the valuation has been coming back to earth recently.

Lightning Round

Lululemon (LULU)

Lululemon reported earnings last night. This stock was once a Wall Street darling, outperforming the index significantly on the back of its ever growing assortment of stretchy clothes for the masses. But the wheels came off in 2024, when the flood of new competitors and entrants finally broke the dam. The stock is up today on the news of a new CEO and strong demand in China. But US sales remain weak, and tariffs are pressuring their gross margins on US product. I’m mentioning them here only out of nostalgia.

The new hot specialty retail stock of the moment is Ralph Lauren (RL), which has been having an unmitigated resurgence the past couple years. We’ll save that for another time.

GE Aviation (GE)

The “GE” ticker that you see in the stock market is no longer the mega-conglomerate of the 1990s. It’s merely GE Aviation – maker of jet engines and the like. The stock has been one of the best perfomers in the market over the past three years, driven by positive aerospace trends and general industrial demand for turbine engines. Citigroup research upgraded them to a ‘buy’ today, so the stock is responding – up 5% on the news

Final Thoughts

We’ve hit some bumps in the AI road. But that’s too be expected. We’re witnessing the birth of an entirely new wave of innovation. It’s similar to the birth of the internet. The winners from the development of the internet are obvious today. But twenty-years ago, it was far from clear. (Anyone remember Alta Vista? Who even owns Yahoo these days?)

There is a concept in economics called the “J-wave”. When a new innovation emerges, there is initially a dip in returns on capital, because companies are spending heavily and still trying to figure out how to best optimize for it. That seems to be where we are now. Returns take a little dip before they spike higher.

But the Costco example above is very telling. They’ve used AI to optimize their inventory to make it much more efficient and reduce losses. And as a side benefit, no jobs were lost in the process.

It’s like the 49ers of old, rushing towards the coast, all trying to strike gold first. There is gold at the end of the rainbow. We can be pretty confident of that. But who finds the most remains to be seen. Happy hunting!