Broadcom
AVGO · NASDAQSemiconductors · AI Accelerators & Infrastructure Software
Since the Report − 3.0%
Close on Report DaySep 2
$367.24▼ 4.0%Report-Day Move
- Market Cap(Today)
- ≈ $1.69 T
- 1Y Return(At Report)
- + 25%
- P/E($9.79 · Trailing 12M)
- 36.4
- Net Margin(Trailing 12M)
- 42.9%
Broadcom beat expectations in the third quarter with $29.6 billion in revenue as AI semiconductor sales jumped 221% year-over-year to $16.7 billion, and the company said it has already secured the supply to double AI revenue again in 2027. Yet the stock fell about 4% after hours because the fourth-quarter revenue outlook of $34.8 billion landed just below the roughly $35 billion the market expected. The question from here is whether the six custom-silicon customers can turn these vast supply commitments into actual shipments.
Revenue (Q3)
$29.59B
▲ 86% YoY · Beat Estimate by 0.5%
AI Revenue
$16.70B
▲ 221% YoY · 54% QoQ
Adjusted EPS
$3.32
Estimate $3.24 · Beat by 2.5%
Q4 Revenue Guidance
$34.80B
Estimate $35.05B · 0.7% Below
Free Cash Flow
$13.67B
46% of Revenue · Record
Stock Reaction
−4%
After Hours · Guidance Overshadowed
Quarterly Revenue ($ Billion)
15.95
18.02
19.31
22.19
29.59
~34.8
- Q3 25
- Q4 25
- Q1 26
- Q2 26
- Q3 26
- Q4 26E
- Annual Revenue Growth
- ▲ 86%
- Semiconductor Solutions
- $20.84B70% of Revenue · AI Share 80%
- Infrastructure Software
- $8.75B30% of Revenue · VMware
Q4 FY2026 Company Guidance
- Revenue (Q4)34.8 billion
Market Expectation $35.05B · ~93% YoY Growth0.7% Below Estimate ▼
- AI Semiconductor Revenue21.7 billion
Prior Quarter $16.7B · +236% YoYStrong Acceleration ▲
- Operating Margin (Adjusted)66%
Prior Quarter Actual 67.9%1.9 Points Contraction ▼
The blue band is the company's low–high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. Axis is ±3.3% around the midpoint.
- Quarterly Dividend
- $0.65Per Share
- Debt Reduction (Q3)
- $5.6BLong-Term Debt
- 2027 AI Revenue Target
- ~$115BDoubling Commitment
“Demand for our custom AI accelerators and networking continues to be very strong. This quarter our AI semiconductor revenue grew 221% year over year. For 2027 we have already secured the supply to double AI revenue again to approximately $115 billion.”
- Six XPU customers
- Revenue to double in 2027
- Demand outpacing supply
Summary
Broadcom closed the third quarter with records. Total revenue rose 86% year-over-year to $29.59 billion, beating the roughly $29.44 billion consensus by 0.5%. Adjusted earnings per share came in at $3.32, 2.5% above the $3.24 estimate. AI is the engine of the story: AI semiconductor sales, which cover custom accelerators (XPUs) and networking, grew 221% year-over-year and 54% sequentially to $16.7 billion, now making up roughly 80% of the semiconductor segment. Free cash flow hit a record $13.7 billion, equal to 46% of revenue.
The numbers were strong, but the stock slid about 4% after hours and briefly tested below $350. The cause was not the results but the outlook: the $34.8 billion revenue target for the fourth quarter came in 0.7% below the roughly $35.05 billion the market expected. In a stock this leveraged to AI and priced for perfection, even a small shortfall triggers selling; as one analyst put it, beating estimates was not enough to keep investors happy. The 210-basis-point sequential contraction in gross margin was another reminder of the lower-margin weight of AI products.
Our overall view is positive. The quarter itself was nearly flawless: both lines beat, operating margin expanded 240 basis points year-over-year, and the company said it has secured the supply to double 2027 AI revenue to roughly $115 billion. Our score reflects that strength; the only caveat is the outlook that landed slightly below expectations. The stock reaction shows not the quality of the quarter but how high a bar has been priced in. What to watch from here is how quickly the six XPU customers convert committed supply into shipments and how margins hold up under the AI mix.
Full Review
ClaudeAI accelerators drive the revenue.
The central story of the quarter is AI semiconductor revenue: it reached $16.7 billion, up 221% year-over-year and 54% sequentially, and alone made up roughly 80% of the $20.84 billion semiconductor solutions segment. Demand is concentrated on the custom-accelerator (XPU) side; the company said it serves six XPU customers and that XPU shipments in the quarter rose more than three and a half times year-over-year. CEO Hock Tan noted that the TPU v8i, Jalapeno and MTIA chips are shipping. This moves Broadcom beyond being a connectivity and infrastructure company and places it at the center of hyperscale AI training and inference hardware. The rest of the segment is classic networking, broadband and storage connectivity, but nearly all of the growth is coming from AI.
The outlook was good, expectations were better.
The $34.8 billion revenue target for the fourth quarter implies roughly 93% year-over-year growth, a very strong figure in absolute terms. But the market was looking for about $35.05 billion, and that small 0.7% shortfall triggered the after-hours selling. This does not mean the quarter was weak; it shows how much optimism is baked into the share price. On the AI side, by contrast, the outlook is accelerating: the fourth-quarter AI semiconductor revenue target is $21.7 billion, up 236% year-over-year. So while the company narrowly missed on total revenue, it is stepping up the pace in AI, the heart of the story.
Supply secured for 2027 and 2028.
Tan's most notable comment was about the future: he said they expect fiscal 2026 AI revenue of roughly $58 billion (up 186% year-over-year) and have already secured the supply to double that again in 2027 to about $115 billion. For 2028 he cited clear line of sight to doubling once more. These targets rest on concrete customer commitments: for Anthropic, after a 1-gigawatt Ironwood deployment in 2026, 5 gigawatts of TPU v8i are planned in 2027 and an incremental 10 gigawatts in 2028; in the Google partnership, multi-tens-of-billions of dollars of TPU shipments annually are targeted over the coming years. This visibility is what separates Broadcom's AI revenue from peers. The risk on the other side is that these commitments have not yet turned into shipments and invoices.
Margins near a peak, AI mix pressures slightly.
Adjusted gross margin, at 74.9%, is still industry-leading, but it narrowed 210 basis points sequentially. The reason is not negative: as low-margin but high-volume custom-chip revenue takes a larger share of the mix, gross margin is naturally pulled down. Against that, operating margin expanded 240 basis points year-over-year to 67.9%; scale economics and the high margin of infrastructure software let revenue growth convert to profit. The adjusted operating margin target for the fourth quarter is roughly 66% of revenue, implying a slight contraction from here; even so, that level is rare in the industry. The balance investors should watch is how much gross margin erodes as AI volume grows.
Cash generation and capital return at record levels.
Free cash flow set a record at $13.7 billion in the quarter, reaching 46% of revenue, an exceptional cash conversion despite AI investment. The company paid stockholders $3.1 billion in dividends and paid down $5.6 billion of long-term debt in the quarter. The quarterly dividend was held at $0.65 per share. This cash strength lets it both rapidly reduce the debt left from the VMware acquisition and fund AI capacity investment internally. Such strong free cash flow at this growth rate is the most concrete evidence supporting the sustainability of the story.
Strengths
6- AI semiconductor revenue rose 221% year-over-year and 54% sequentially to $16.7 billion
- Free cash flow set a record at $13.7 billion, equal to 46% of revenue
- Operating margin expanded 240 basis points year-over-year to 67.9%
- Six XPU customers and AI supply secured to double to roughly $115 billion in 2027
- Expansion into enterprise infrastructure with VMware-based private AI cloud platforms
- $5.6 billion of long-term debt repaid and $3.1 billion in dividends paid in the quarter
Risks
5- Fourth-quarter revenue outlook 0.7% below market expectations; the bar is priced very high
- Gross margin narrowed 210 basis points sequentially as the AI mix pulls segment margin down
- Heavy revenue dependence on a few large hyperscale customers
- 2027-2028 supply commitments have not yet converted to shipments and revenue; execution risk
- Stock priced for perfection; even small shortfalls trigger sharp reactions
What to Watch
4- Fourth-quarter (fiscal year ending November) results ~December 2026
- Fourth-quarter AI semiconductor revenue target of $21.7 billion (up 236% year-over-year)
- Start of 5-gigawatt TPU v8i shipments for Anthropic in 2027
- Rollout of the multi-tens-of-billions annual shipment plan in the Google TPU partnership
Upcoming Earnings
To Understand This