Broadcom reports record Q3 revenue, lifts Q4 AI outlook

Broadcom (NASDAQ: AVGO ) held its third-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Watch the full earnings call below: Summary Broadcom Inc.

reported record financial results for Q3 FY 2026, with consolidated revenue of $29.6 billion, up 86% year-on-year, driven by a significant increase in AI semiconductor revenue. AI semiconductor revenue grew 221% year-on-year to $16.7 billion, making up 56% of total revenue, with strong demand expected to continue into Q4. The company forecasted Q4 consolidated revenue of $34.8 billion, up 93% year-on-year, with AI revenue expected to be $21.7 billion, up 236% year-on-year. Operating income increased by 92% year-on-year to $20.1 billion, with an operating margin of 68%, showcasing strong operational leverage.

Broadcom announced strategic partnerships and long-term agreements with key customers like Google, Anthropic, and OpenAI, highlighting the growth in demand for its custom accelerators and AI networking solutions. Future outlook includes AI revenue doubling to $115 billion in fiscal 2027 and doubling again to $230 billion in fiscal 2028, supported by secured supply lines and customer demand. Non-AI semiconductor revenue remained stable, with a forecasted slight increase in Q4, while infrastructure software revenue showed growth, driven by new enterprise AI solutions.

Management emphasized continued investments in semiconductor and AI technology, including substrate and laser capacity expansions, to meet growing market demands. Full Transcript OPERATOR Welcome to Broadcom Inc.'s third quarter fiscal year 2026 financial results conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Gu, Head of Investor Relations at Broadcom Inc. Please go ahead.

Gu, Head of Investor Relations Thank you, Cherie, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO; Amy Teener, Chief Financial Officer; and Charlie Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the third quarter fiscal year 2026. If you did not receive a copy, you may obtain the information from the Investor section of Broadcom's website at broadcom.com.

This conference call is being webcast live, and an audio replay of the call can be accessed for one year through the Investors section of Broadcom's website. During the prepared comments, Hock and Amy will be providing details of our third quarter fiscal year 2026 results, guidance for our fourth quarter of fiscal year 2026, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments. Please refer to our press release today and our recent filings with the SEC for information on risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call.

In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non—GAAP basis. A reconciliation between GAAP and non—GAAP measures, to the extent possible, is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non—GAAP financial results.

I will now turn the call over to Hock. Hock Tan, President and Chief Executive Officer Well, thank you, Gu, and thank you everyone here for joining us today. We delivered an exceptional quarter with revenue, operating income, and free cash flow all exceeding prior records, and driving this was our Q3 AI semiconductor revenue, which grew 221% year on year and up 54% sequentially. This brought our consolidated revenue to 29.6 billion, which was up 86% year on year.

Operating income grew even faster at 92% year on year, with operating margin at a record 68% of revenue, reflecting strong operating leverage. Q3 demand was simply hot, and we're just getting started. Our six XPU customers are accelerating the adoption of custom accelerators, and AI semiconductor revenue more than tripled year over year to 16.7 billion during the quarter. We delivered Ironwood TPU version 7 in high volume to both Anthropic and Google.

At the same time, we began production shipments of the next generation TPU version 8i for Google. This new TPU generation has been designed with more memory and bandwidth compared to Ironwood and, just like Ironwood, is optimized for inference workloads, and in performance it is comparable, if not surpasses, the VARO Rubit GPU. Just to reiterate the major technology challenges of developing these complex accelerators, Broadcom is now shipping the TPU version 8i ahead of the MediaTek version V8T, which in fact was initiated earlier in Q3. We also shipped Jalapeno, OpenAI's first generation custom accelerator, which outperforms Grace Blackwell GPU for inference workloads.

Overall, our XPU shipments for the third quarter were up over three and a half times year on year and represented 73% of AI revenue during the quarter. Our AI networking revenue was up over two and a half times year on year, and this strong momentum continues into Q4. During the quarter, we expect to accelerate shipments of Ironwood to Anthropic. We also expect to ramp up high volume shipments of the TPU version 8i to Google.

Shipments of Jalapeno for OpenAI will continue, and for Meta we expect production shipments of their custom MTIA accelerator optimized for inference and recommendation at scale. In Q4 we expect both XPUs and AI networking revenue to triple year on year, and together we expect these deployments to drive our Q4 AI revenue to 21.7 billion, which is up 236% year on year. Based on this Q4 guidance, we expect our fiscal 2026 AI revenue to be 58 billion for the year, up 186% year over year and above our prior guidance of 56 billion. We are continuing to see exponential growth in demand from our XPU customers.

We believe the vast majority of compute demand for AI workloads today originates from these concentrated group who develops state-of-the-art frontier models, and we expect their need for compute infrastructure to inflect even more in 2027 and 2028, and they are all growing with XPUs to achieve superior performance, cost, and power. Let me now walk you through each of their journey—each of our customers' journey—towards using XPUs at scale to run their frontier models worldwide workload. Our engagement with Google has never been stronger. This has been recently strengthened by a long-term agreement to develop and supply future generations of TPUs and AI networking.

Under this agreement we are planning to deliver multi tens of billions of dollars of TPUs annually over the next several years. We expect this growing demand in 28 and 29 to be fulfilled through successive generations of the increasingly complex TPU SoC we are developing today with Google. Our partnership with Google will continue to sustain because we have the strongest IP portfolio in semiconductor design, including industry-leading SerDes, chip-to-chip interconnect, leading edge HBM and SRAM integration, and simply differentiated advanced packaging.

Most of all, we have consistently delivered the fastest time to market for TPUs from product definition to production without the need for respins. We believe these are very deep moats for any competitor to cross. Moving on to Anthropic, starting with the 1 gigawatt of Ironwood we are deploying in 2026, we expect Anthropic to deploy another 5 gigawatts of TPU version 8i in 2027, and in 2028 we have clear line of sight to deliver another, an incremental, 10 gigawatts. Even as we expect Google to grow for us, Anthropic is on track to become our largest XPU customer in 2027 and sustain that in 2028.

For OpenAI, Jalapeno is on track for the planned deployment of 1.3 gigawatts in 2027. Together with OpenAI, we are deep in development of the next generation XPU beyond Jalapeno, which is approaching tapeouts. In 2028 we have line of sight for OpenAI to deploy over 5 gigawatts of Jalapeno and its successor generation of XPU, which would make OpenAI our second largest XPU customer. In addition, we are in development with OpenAI on their third generation XPU.

As OpenAI announced last week, Jalapeno outperforms the Grace Blackwell Ultra in performance per watt, latency, throughput, and power, and is actually comparable to Varirubin GPUs in running OpenAI workloads. The lesson here is when you co-develop a chip that is optimized for your particular LLM workloads, you will outperform any GPU. Like TPUs, Jalapeno demonstrates that it can also run other frontier models, and you can do all this at half the cost of a GPU. Our partnership with Meta to deliver multiple generations of MTIA XPUs remains on track.

Between now and the end of 2027, we will be delivering three generations of MTIA accelerators to Meta. Across these three generations we have line of sight to deploy 3 gigawatts through 28. Our content in AI, as you know, goes beyond XPUs. We're the leader in AI networking, and we continue to extend our lead in Ethernet switching for scale up and scale out.

We were first to market with our 100 terabyte Tomahawk 6, and we just taped out Tomahawk 7, the industry's first 200 terabit per second Ethernet switch for scaling in. We continue to be the leader in every generation of PCI Express switching. We're now the leader in leading edge optical DSPs and are rapidly expanding our capacity and market position as a leader in EMLs, VCSELs, and CW lasers for optical interconnects. In sum, we continue to invest, and invest heavily, to provide the broadest and most leading edge AI portfolio.

In fact, our AI networking revenue is expected to grow just as fast as XPUs over the next few years. Reflecting our excellent progress with this key group of LLM customers, here is our outlook for our AI semiconductor revenue. In 2027 we have secured the supply to again double AI revenue to approximately $115 billion. Our demand actually exceeds this outlook, and we will work to improve supply in 2028.

We expect the trajectory of growth to continue. We have line of sight for fiscal 2028 AI semiconductor revenue growth to again double to $230 billion. Here again, we have secured the supply to meet this outlook. This AI revenue guidance through 28 is being provided to give you the trajectory of our growth.

That demand for compute continues to be extremely strong. As a result, I got to say we are very much on target to exceed $30 in earnings per share in fiscal 2028. Now turning to non—AI semiconductors, Q3 revenue of $4.2 billion was up 5% year on year and flat sequentially. Broadband and server storage together were up, partially offset by a decline in wireless.

In Q4 we forecast non—AI semiconductor revenue to be approximately 4.3 billion, again up 5% sequentially. Talking about infrastructure software, Q3 revenue of $8.8 billion was up 29% year on year, and we sustained ARR growth of 15% year on year. For Q4 we forecast infrastructure software revenue to stabilize at approximately 8.7 billion. We announced VMware Private AI Cloud Can, giving enterprises a secure, cost—effective platform to build and run AI alongside their existing applications.

It brings together AI infrastructure, security and compliance, and the tools to build and operate trusted AI agents, all while protecting enterprise data. VCF, VMI Cloud, that is also making it easier for customers to repatriate workloads from public cloud to private cloud where they can gain greater control and significantly improve infrastructure economics. Enterprise consumption of AI is in fact opening a new opportunity for our infrastructure software business. So to sum it all, for Q4 '26 we expect consolidated revenue to grow to $34.8 billion, up 93% year on year.

We expect Q4 AI revenue to be $21.7 billion, up 236% year on year, and we expect operating margin to be approximately 66% of revenue. And with that, let me turn it over to Amy. Shirley Wong, Chief Financial Officer Thank you, Hock. Let me now provide additional detail on our Q3 financial performance.

Consolidated revenue was a record $29.6 billion for the quarter, up 86% year on year. Gross margin was 75% of revenue in the quarter, down 210 basis points sequentially. As AI semiconductor revenue was a greater proportion of our total revenue mix, this was better than our guidance of 74%. Q3 operating income was a record 20.1 billion, up 92% from a year ago.

Even with the decline in gross margin due to revenue mix, operating margin increased 240 basis points year over year to 67.9% because of the phenomenal operating leverage we are achieving. Aligned with this Q3 non-GAAP EPS of $3.32 was up 96% year on year. Now I'll review the P&L for our two segments starting with semiconductors. Revenue for our Semiconductor Solutions segment was a record 20.8 billion, up 127% year on year and represented 70% of our total revenue.

AI semiconductor revenue of 16.7 billion represented 56% of total revenue, up from 49% in Q2. Gross margin for our Semiconductor Solutions segment was approximately 76%. Operating expenses of 1.2 billion reflected investments in R&D with opex representing 6% of segment revenue. Operating margin of 61% was up 440 basis points year on year as revenue growth of 127% outpaced operating expenses, which grew 22% year on year.

Moving on to Infrastructure Software, revenue of 8.8 billion was up 29% year on year and represented 30% of our total revenue. Gross margins for Infrastructure Software was 94% in the quarter and operating expenses were over 900 million. Q3 software operating margin was up 650 basis points year on year to approximately 84%. Moving on to the balance sheet, we ended the third quarter with $24 billion of cash compared to 19.6 billion in the prior quarter, up 4.3 billion sequentially.

We ended the third quarter with inventory of 4.5 billion to support our strong semiconductor demand. Moving on to cash flow, free cash flow in the quarter was a record 13.7 billion and represented 46% of revenue. We spent 532 million on capital expenditures in the quarter. Turning to capital allocation, in Q3 we paid stockholders 3.1 billion of cash dividends based on a quarterly common stock dividend of 65 cents per share.

In Q3, we also paid down 5.6 billion of long-term debt. Subsequent to quarter end, we paid down an additional 1.5 billion of senior notes upon maturity. The weighted average coupon rate and years to maturity of our gross principal fixed-rate debt of 59.6 billion is 4% and 7.4 years respectively. In June we established the AI XPV platform in partnership with Apollo and Blackstone to enable more than 20 gigawatts of compute infrastructure for OpenAI and Anthropic by the end of 2028.

We closed the first $35 billion tranche in June for Anthropic's 1 gigawatt deployment, which is already underway. While future tranches will include unique features tailored to specific lab and investor needs, our core strategy remains consistent. First, we are empowering two of our most strategic customers, the leading AI labs, to bridge the gap between their current cash flow and the significant upfront investments required for their businesses. Our XPUs enable cost-effective, sustainable growth at multiples of their infrastructure costs.

Second, this XPV platform enables highly investable customers and facilitates execution where demand is already locked in. And third, we review any strategic financings through a commercial as well as balance sheet lens, consistent with our existing capital allocation framework. Through the XPV platform, we partner with sophisticated third-party financial partners to independently underwrite and capitalize the assets rather than providing the direct financing ourselves.

Where necessary, we may provide modest residual value guarantees, which are contingent liabilities we view as low risk, supported by the strong profitability trajectory of these labs and the sustaining value of the underlying assets. Moving on to guidance. Our guidance for Q4 is for consolidated revenue of $34.8 billion, up 93% year on year. We forecast semiconductor revenue of approximately 26.1 billion, up 136% year on year.

Within this, we expect Q4 AI semiconductor revenue of 21.7 billion, up over 236% year on year. We expect Q4 Infrastructure Software revenue of approximately $8.7 billion, up 25% year on year. Moving on to margins. As the proportion of AI revenue accelerates in Q4, we expect our Q4 consolidated gross margin to be approximately 73%, down from 78% a year ago.

As we've discussed previously, this reflects the increasing mix of XPUs with their increasing memory content, which is diluting our consolidated gross margin. Regardless, we expect Q4 operating margin to be approximately 66%, flat from a year ago. Because our strong revenue growth drives substantial operating leverage, we expect the non-GAAP tax rate for Q4 and fiscal year 2026 to be approximately 16%. Due to the impact of the global minimum tax and the geographic mix of income compared to that of fiscal year 2025, we expect the Q4 non-GAAP diluted share count to be approximately 4.94 billion shares, excluding the impact of potential share repurchases.

And in Q4, we expect capital expenditures of $1.4 billion as we invest in capacity for semiconductors. As Hock mentioned in his remarks, we expect AI revenue to double again to approximately 115 billion in fiscal 2027 and double again in fiscal 2028 to $230 billion. This AI revenue guidance is being provided to you to give you the trajectory of our growth, and we do not intend to update it on a quarterly basis. That concludes my prepared remarks.

Operator, please open up the call for questions. OPERATOR Thank you.