AVGO · Q3 2025 Earnings

Bullish

Broadcom

Reported September 4, 2025

30-second summary

30-second take. Broadcom delivered Q3 revenue of $15.95B (+22% YoY) with AI semis at $5.2B (+63% YoY), beating the $15.8B / $5.1B prior guide and extending AI growth to ten consecutive quarters. Q4 is guided to $17.4B (+24% YoY) with AI semis stepping to $6.2B (+66% YoY) — and management explicitly raised the FY2026 AI outlook above last quarter's ~60% trajectory, anchored to a fourth qualified XPU customer with $10B+ in secured orders. Hock Tan committing to stay through at least 2030 was paired with a record $110B backlog; this was the most forward-committed Broadcom quarter in recent memory.

Headline numbers

EPS

Q3 FY2025

$1.69

Revenue

Q3 FY2025

$15.95B

+22.0% YoY

Gross margin

Q3 FY2025

67.1%

Free cash flow

Q3 FY2025

$7.02B

Operating margin

Q3 FY2025

36.9%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$15.95B	+22.0%	$15.00B	+6.3%
EPS	$1.69	—	$1.58	+7.0%
Gross margin	67.1%	—	67.9%	-80bps
Operating margin	36.9%	—	38.8%	-190bps
Free cash flow	$7.02B	—	$6.41B	+9.6%

Guidance

Guidance is issued one quarter forward. The Prior-guide column references the guide issued last quarter for the period just reported; the New-guide column is for next quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q3 FY2025	$15.8 billion	$15.952 billion	+$0.152 billion above guide	Beat
AI semiconductor revenue	Q3 FY2025	$5.1 billion	$5.2 billion	+$0.1 billion above guide	Beat
Semiconductor revenue	Q3 FY2025	approximately $9.1 billion	$9.166 billion	+$0.066 billion above guide	Beat
Infrastructure software revenue	Q3 FY2025	approximately $6.7 billion	$6.786 billion	in-line	Met
Adjusted EBITDA margin	Q3 FY2025	at least 66% of revenue	67% of revenue	+100 basis points above prior minimum	Beat

New guidance

Metric	Period	Guide	YoY
Revenue	Q4 FY2025	$17.4 billion	+24% YoY
AI semiconductor revenue	Q4 FY2025	$6.2 billion	+66% YoY
Semiconductor revenue	Q4 FY2025	$10.7 billion	+30% YoY
Non-AI semiconductor revenue	Q4 FY2025	$4.6 billion	—
Infrastructure software revenue	Q4 FY2025	$6.7 billion	+15% YoY
Adjusted EBITDA margin	Q4 FY2025	67%	—
Consolidated gross margin	Q4 FY2025	down approximately 70 basis points sequentially	—

Segment performance

Q3 FY2025

Segment	Q3 FY2025	YoY
Semiconductor solutions	$9.166B	+26.0%
Infrastructure software	$6.786B	+17.0%

Capacity & utilization

Q3 FY2025

Segment	Q3 FY2025
AI revenue	$5.2B
AI revenue YoY growth	63%

Profitability

Q3 FY2025

Segment	Q3 FY2025
Adjusted EBITDA	$10.7B
Adjusted EBITDA margin	67% of revenue
Free cash flow margin	44% of revenue
Operating cash flow	$7.2B

Management tone

Narrative arc: Q2 FY2025 inference pull-forward → Q3 FY2025 fourth customer qualification and CEO 2030 commitment.

The single most important tone shift: last quarter management framed FY2026 AI growth as "sustaining" the ~60% FY2025 pace — already an upgrade from the prior "post-2025 normalization" hedge. This quarter, management said outright: "we now expect the outlook for fiscal 2026 AI revenue to improve significantly from what we had indicated last quarter." In Q&A, Vivek Arya extracted that this means a "fairly material improvement" above the 50-60% baseline. In two quarters, the FY2026 framing has moved from uncertain to sustained to accelerating — driven by a concrete catalyst (fourth customer) rather than market hand-waving.

The XPU customer arc tightened materially. Last quarter Broadcom had three customers plus unnamed "prospects" that management refused to discuss. This quarter, one of those prospects converted: "Last quarter, one of these prospects released production orders to Broadcom...we have accordingly characterized them as a qualified customer for XPUs. And in fact, have secured over $10 billion of orders." The opacity that frustrated analysts in Q2 broke this quarter with a specific dollar number — and management hinted at a possible eighth prospect on the horizon.

CEO tenure went from implicit to explicit. Hock Tan's announcement — "The Board and I have agreed that I will continue as the CEO of Broadcom through 2030 at least. These are exciting times for Broadcom" — removes succession overhang at exactly the moment management is asking the market to underwrite a multi-year AI ramp. The pairing is deliberate.

Networking reframed from supporting actor to architectural moat. Last quarter Tomahawk 6 was positioned as enabling; this quarter the framing escalated: "The network is the computer, and our customers are facing challenges as they scale to clusters beyond 100,000 compute nodes." The implication is that networking share won't decline as fast as analysts have modeled — even as XPU mix rises to 65% — because scale-up Ethernet density requirements expand the networking dollar TAM.

Non-AI tone shifted from "close to the bottom" to "U-shaped recovery by mid-to-late FY26." Management was careful to note they were "tricked before" on recovery predictions, but bookings up 23% YoY and Q4 sequential growth indicate the cycle has turned. Only broadband shows sustained strength; wireless and server storage remain seasonal.

Recurring themes management leaned on this quarter:

AI semiconductor revenue acceleration and consecutive quarter growth trajectoryXPU business gaining share and expanding customer base beyond original threeAI networking criticality as clusters scale beyond 100,000+ compute nodesVMware Cloud Foundation as enterprise alternative to public cloudRecord backlog ($110B) and bookings indicating robust forward demandOperating margin expansion through software mix and integration completion

Risks management surfaced:

Non-AI semiconductor demand continues to be slow to recoverEnterprise networking expected to remain down quarter on quarter in Q4Gross margin headwinds from XPU and wireless product mix in Q4Dependency on three primary custom AI accelerator customers for majority of XPU revenueAbility to scale production to meet record backlog demand

Q&A highlights

Ross Seymour · Deutsche Bank

What has changed in XPU growth expectations versus a quarter ago? Is it driven by the fourth customer addition or stronger demand from existing three customers?

Growth acceleration is driven by both factors: increasing volumes from existing three customers AND the addition of a fourth significant customer with substantial immediate demand, beginning production in early 2026. This combination materially changes 2026 outlook.

Fourth customer addition to XPU rosterFourth customer will ship strongly beginning 2026Volumes increasing progressively from existing three customers

Vivek Arya · Bank of America

What is the new Fiscal 26 AI guidance? Is it 60% plus the $10 billion backlog? How will custom versus networking mix evolve?

Growth rate in FY26 will accelerate beyond FY25's 50-60% rate (described as 'fairly material improvement'), though specific number not provided. Custom/XPU mix will increase as a percentage while networking percentage will decline, driven by three existing customers gaining XPU share each generation plus fourth customer addition.

FY26 growth will accelerate beyond FY25's 50-60% baselineGrowth rate acceleration described as 'fairly material improvement'XPU percentage of revenue mix will increaseNetworking percentage of pool will decline as XPU content grows

Stacy Raskon · Bernstein Research

Can you break down the $110 billion backlog by AI versus non-AI versus software? How far out does it extend?

Company declines to break down backlog by segment but notes 50%+ is semiconductors, heavily weighted toward AI. Software continuing to grow steadily, non-AI growing double digits but dwarfed by AI growth. Backlog indicates strength across business.

$110 billion total backlogAt least 50% is semiconductorsSemiconductor backlog heavily weighted toward AI versus non-AISoftware continuing to add steadily

Harlan Sir · JP Morgan

Non-AI semiconductor business appears to be approaching cyclical bottom with improving trends. How should we think about magnitude of recovery and are order improvements visible given 30-40 week lead times?

Non-AI business will be slightly positive YoY in Q4 (low single digits). Only broadband showing sustained strong uptrend; wireless and server storage show seasonality but not V-shaped recovery. Expecting U-shaped recovery by mid-to-late FY26. Non-AI bookings up 23% YoY, which is solid. Orders improving but company was 'tricked before' on recovery predictions.

Q4 FY25 non-AI semi expected low single-digit positive YoY (1-2%)Broadband recovering very stronglyNon-AI bookings up 23% YoYU-shaped recovery expected mid-to-late FY26

Jim Schneider · Goldman Sachs

Beyond the seven identified customers/prospects, are there additional prospects worthy of custom chips? How do you view the broader addressable market?

Market divided into two segments: LLM developers (which Broadcom addresses) and enterprise (which it does not address). LLM market very narrow with few frontier model players. Broadcom identifies seven total (four customers, three prospects), with possible eighth prospect. Very selective criteria: must be building/have platform, investing heavily in leading LLM models. May see 'one more perhaps' as prospect but current count is seven.

Seven total identified opportunities (four customers, three prospects)Possible eighth prospect on horizonBroadcom addresses only LLM developer market, not enterpriseSelective criteria: platform + massive LLM investment required

Answers to last quarter's watch list

Q3 FY2025 AI semiconductor revenue vs. the $5.1B guide. AI semis came in at $5.2B (+63% YoY), beating the guide by $100M, and management explicitly raised the FY2026 outlook above the prior ~60% trajectory. The bar didn't tighten — it loosened.

Resolved positively

Q3 FY2025 gross margin vs. the down ~130bps QoQ guide. Consolidated non-GAAP gross margin landed at 67.1%; management is now guiding Q4 down only ~70bps QoQ on continued XPU and wireless mix. XPU dilution is real but more contained than the Q2 guide implied.

Resolved positively

Tomahawk 6 production order conversion. Management didn't break out Tomahawk 6 production orders specifically this quarter, instead reframing the networking story around scale-up Ethernet for 100,000+ node clusters. The FY2026 ramp narrative is intact but the specific T6 production cadence wasn't quantified.

Continue monitoring

Non-AI semiconductor sequential trajectory. Q4 non-AI guided to ~$4.6B (low double-digit QoQ growth) on seasonality; non-AI bookings up 23% YoY; broadband sustaining strength; wireless and server storage seasonal but not in V-recovery. Management calls for U-shaped recovery by mid-to-late FY2026. Cycle has turned but slope is gradual.

Resolved positively

Disclosure on unnamed prospect customers. One prior prospect converted to qualified customer with $10B+ secured XPU orders, production shipments starting early 2026. Management also flagged a possible eighth prospect. This is the cleanest disclosure progression Broadcom has offered on the AI customer pipeline.

Resolved positively

What to watch into next quarter

Q4 FY2025 AI semiconductor revenue vs. the $6.2B guide (+66% YoY). A beat with explicit FY2026 quantification (a dollar number or YoY range) would convert the "improve significantly" qualitative upgrade into a hard floor. An in-line print without FY2026 specifics keeps the upgrade soft.

Q4 consolidated gross margin landing vs. the down ~70bps QoQ guide (i.e. ~66.4%). XPU mix continues to rise to 65%+ of AI revenue; whether margin holds the new lower band or steps down further sets the FY2026 model.

Fourth XPU customer production ramp timing. Management said "early 2026"; first concrete revenue contribution disclosure on the Q4 or Q1 FY2026 call will validate the $10B+ order backlog conversion rate.

Eighth XPU prospect status. Hock Tan explicitly flagged "one more perhaps" beyond the current seven. Conversion would extend the multi-year AI customer narrative; non-disclosure for two consecutive quarters would suggest the prospect stalled.

Non-AI semiconductor Q4 print vs. the $4.6B guide and FY2026 recovery slope. Bookings up 23% YoY need to convert to actual revenue acceleration; watch whether wireless and server storage join broadband in sustained sequential growth.

Backlog composition disclosure. Management resisted breaking down the $110B by segment; pressure for finer granularity will mount as the number grows.

Sources

Broadcom Q3 FY2025 press release (8-K exhibit, filed 2025-09-04): https://www.sec.gov/Archives/edgar/data/1730168/000173016825000094/avgo-08032025x8kxex99.htm
Broadcom Q3 FY2025 earnings call prepared remarks and Q&A (referenced via extraction inputs).

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