Key Highlights

  • Fiscal Q3 Revenue rose 86% to $29.59 billion, and AI semiconductor revenue jumped 221% to $16.7 billion, about 3.2 times the year-earlier level.
  • Broadcom guided Q4 revenue to about $34.8 billion (+93%) and AI revenue to $21.7 billion (+236%), but the stock fell about 6% on Sept. 3 on a slight guidance shortfall and Margin concerns.
  • CEO Hock Tan outlined $115 billion of AI revenue in fiscal 2027 and $230 billion in fiscal 2028, projections that depend on a handful of hyperscaler customers.
  • Broadcom generated free Cash Flow of $13.67 billion, or 46% of revenue, in the quarter, and disclosed a Manufacturing agreement with Samsung Electronics valued at more than $200 billion.

Broadcom Inc. (NASDAQ:AVGO) more than tripled its AI chip revenue in a year by selling two things hyperscale cloud companies are buying in bulk: custom AI accelerators designed for individual customers, and the high-speed networking silicon that connects large clusters of processors. In its fiscal third-quarter report on Sept. 2, the company said AI semiconductor revenue reached $16.7 billion, up 221% from a year earlier and 54% from the prior quarter.

A 221% increase means the Business is now about 3.2 times the size it was a year ago, when AI semiconductor revenue was roughly $5.2 billion. "Demand for our custom AI accelerators and networking continues to be very strong," CEO Hock Tan said in the release. He added that Broadcom expects AI semiconductor revenue to accelerate to $21.7 billion in the fourth quarter, up 236% year over year.

The stock has not moved in step with the growth. Shares fell about 6% to $346.49 on Sept. 3, as investors focused on fourth-quarter guidance that was slightly below consensus and on narrowing gross margins.

Breaking Down the Fiscal Third Quarter

For the quarter ended Aug. 2, Broadcom reported revenue of $29.59 billion, up 86% from $15.95 billion a year earlier. GAAP Net Income rose 216% to $13.09 billion, or $2.68 per diluted share. On a non-GAAP basis, net income was $16.37 billion and diluted EPS was $3.32, up 96%. Non-GAAP Operating Income grew 92% to $20.10 billion.

The semiconductor solutions segment, which includes the AI business, generated $20.84 billion, up 127% and now 70% of total revenue. Infrastructure software, which is largely the VMware franchise, contributed $8.75 billion, up 29%. AI semiconductors alone accounted for about 56% of company revenue.

Cash generation kept pace. Operating Cash Flow was $14.20 billion and capital expenditures were only $532 million, leaving free cash flow of $13.67 billion, or 46% of revenue. Broadcom ended the quarter with $23.98 billion in cash and declared a quarterly Dividend of $0.65 per share, payable Sept. 30 to stockholders of record on Sept. 21.

For the fourth quarter, which ends Nov. 1, Broadcom guided revenue to about $34.8 billion, up 93% year over year, with non-GAAP operating income of about 66% of revenue. CFO Amie Thuener said the company expects to hold its non-GAAP Operating Margin flat from a year ago.

How the AI Engine Got So Big

Broadcom's AI strategy is different from Nvidia's (NASDAQ:NVDA). Rather than selling a standard graphics processor, it co-designs application-specific chips, often called XPUs, with a small group of very large customers, and pairs them with its Ethernet switching and connectivity products. Google (NASDAQ:GOOGL) has long been viewed as the company's largest custom-chip customer through its tensor processing units.

On the Sept. 2 earnings call, Tan put numbers on the pipeline. He said Broadcom expects to ship $350 billion of AI semiconductors to six hyperscaler customers over two years, including $115 billion in fiscal 2027 and $230 billion in fiscal 2028. He also said Anthropic is positioned to become Broadcom's largest custom-chip buyer by 2027. These are management projections, not reported results, and they depend on customers following through on their deployment plans.

Why the Stock Has Lagged

The reaction to the quarter showed that growth alone is not enough for the market. The $34.8 billion revenue guide came in below the $35.05 billion consensus, and Broadcom guided fourth-quarter gross margin to about 73%, down from 78% a year earlier. The decline reflects a larger share of revenue from custom accelerators and the high-bandwidth memory built into them, which carry lower margins than software.

Analyst views were split. StoneX analyst Cody Acree, who rates the stock a Buy, said the size of the beat and raise was "not quite enough" for a company this exposed to AI. JPMorgan (NYSE:JPM) analyst Harlan Sur called the AI outlook "strong and conservative" and kept an Overweight rating. Before the report, Broadcom was up only about 7% for the year and well below its June peak of about $495.

Sentiment took another hit on Sept. 14. After Anthropic CEO Dario Amodei published an essay urging AI companies to moderate the pace of capabilities development, Broadcom fell 4.8% and the iShares Semiconductor ETF dropped 5.6%. Tan said Demand for compute infrastructure remains "very strong and, I believe, very durable," especially for inference.

Competitive Landscape

Broadcom competes with Nvidia, whose general-purpose GPUs still dominate AI training, and with Marvell Technology (NASDAQ:MRVL), which also designs custom silicon for cloud providers. AMD (NASDAQ:AMD) competes for accelerator spending as well. Hyperscalers' push to design their own chips has favored Broadcom's model, but it also concentrates revenue among a handful of very large buyers with considerable negotiating power. Broadcom also disclosed a multi-year manufacturing agreement with Samsung Electronics valued at more than $200 billion, which points to the scale of Supply the company expects to need.

Key Risks to Monitor

  • Customer concentration: A small number of hyperscalers account for the AI pipeline, so a change in any one customer's plans could move results significantly.
  • Margin mix: Faster growth in custom accelerators is diluting gross margin, as the 73% fourth-quarter guide shows.
  • AI spending sentiment: The Sept. 14 sell-off showed how sensitive the stock is to any suggestion that frontier AI development could slow.
  • Supply chain and trade: Broadcom relies on contract manufacturers and a limited number of suppliers, and its filings flag trade restrictions and geopolitical tension as risks.

The Fiscal Fourth-Quarter Scorecard

The next scheduled items are the dividend payment on Sept. 30 and the fiscal fourth-quarter report, which is set for Dec. 9. That report will show whether AI semiconductor revenue reaches the $21.7 billion guide and whether gross margin stabilizes near 73%.

Investors will also look for any first guidance on fiscal 2027 and for signs that the $115 billion AI revenue projection for that year is turning into firm orders.