Table of Contents
a. Demand
Slightly beat revenue estimate & beat guidance by 0.6%.
Beat semiconductor solutions revenue estimate by 1.3% & beat guidance by 1.5%.
Beat $16.0B AI semiconductor solutions revenue guidance by 4.4%.
Missed infrastructure software revenue estimate by 1.7% & missed guidance by 1.6%.
b. Profits
Beat 74% GPM estimate by 100 basis points (bps; 1 basis point = 0.01%).
GPM is falling due to higher mix of AI revenue and higher memory needs associated with this.
Beat EBIT estimate by 1.9% & beat guide by 2%. EBIT rose 92% Y/Y.
Beat $3.24 EPS estimate by $0.08. EPS rose 96% Y/Y.
Missed FCF estimate by 6%. FCF rose by 95% Y/Y.
c. Balance Sheet
$24B cash & equivalents.
$59B debt. Broadcom paid off $5.6B in debt during the quarter and another $1.5B right after the quarter ended. Its average coupon and years to maturity on the debt outstanding is 4% and 7.4 years, respectively.
Inventory rose by 106% Y/Y to reach $4.5B.
Slight Y/Y dilution.
This past June, Broadcom partnered with Apollo and Blackstone to form an XPU-focused private vehicle (the “AI XPV Platform”) to help provide funding for 20+ gigawatts of compute for OpenAI and Anthropic by the end of fiscal year 2028 (about 2 years from now). This has already helped secure $35B in financing for 1 gigawatt of compute, which probably means somewhere around $25B in Broadcom revenue (+/- $5B).
While the company has caught criticism for arranging the financing that lets their customers buy their chips, leadership is adamant about this being the correct approach. They acknowledged the incredible demand for compute and how these two companies don’t have the balance sheets to support needed buildouts. They view arranging this financing as an easy decision, since third-party investors put up the capital, not Broadcom. I think most of the criticism here comes from the up to $29B in residual value guarantees, which were part of the first gigawatt and could be part of more AI XPV Platform deployments. This effectively means AVGO is promising creditors that these chips will be worth a certain amount and paying them if they’re not.
d. Guidance & Valuation
Gross profit margin is expected to fall from 78% to 73% Y/Y. This is 50 bps lower than 73.5% margin expectations and is tied to AI revenue growing as a portion of the overall business. Their XPUs feature an increasingly vast amount of memory, which obviously is experiencing rampant inflation at this point in time.
Revenue guidance met estimates.
This includes $26.1B in semiconductor solutions revenue growing 136% Y/Y and, within that, $21.7B in AI semiconductor solutions revenue growing 236% Y/Y. Both XPU-related and networking-related revenue is expected to triple Y/Y. This guide brings total AI-related revenue guidance to $58B for 2026, which is $2B higher than the outlook offered last quarter.
Revenue guidance also includes $8.7B in infrastructure software revenue, representing 25% Y/Y growth.
EBIT guidance missed estimates by 1%.
They expect EBIT margin to be flat Y/Y at 66% despite 5 points of Y/Y GPM pressure to overcome.
For fiscal year 2027, Broadcom expects $115B in AI revenue for about 100% Y/Y growth. This bucket is again expected to double in 2028 to reach $230B. For context, FY 2028 revenue estimates are $234B total. That will likely move meaningfully higher after this print, considering infrastructure software is at a quarterly revenue rate of nearly $9B on its own. Its non-AI semiconductor solutions segments are also certainly not zeroes. It’s also important to keep in mind that these lofty numbers are exclusively for secured supply and demand is well beyond this amount. Finally, Broadcom guided to $30+ in FY 2028 EPS. That is $3.58 or 13% higher than current expectations, and again represents a prudent base case. There’s always heightened uncertainty when dealing with multi-year forecasts, but this guide was undeniably impressive and bodes well for AI infrastructure cycle longevity.
Broadcom trades for 23x forward EPS. EPS is expected to grow by 71% Y/Y this year and by 68% Y/Y next year. Those estimates will likely rise following the robust multi-year outlook described above.
e. Call & Release
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