Broadcom (AVGO) shares have retreated sharply in recent months, sliding more than 23% from their 52-week high. The pullback comes despite strong, AI-driven demand and strength in the infrastructure software offerings. Ongoing geopolitical uncertainty has made investors cautious, while questions around margins have added to the pressure. Together, these factors have weighed on sentiment, even as Broadcom’s end markets remain resilient. More News from Barchart Wall Street, however, remains optimistic on ...

Core Viewpoint - Broadcom's stock has experienced a 20% decline from its 52-week high, primarily due to concerns over profitability and gross margins, despite strong demand for its AI-focused semiconductor products and infrastructure software solutions [1][2][9] Group 1: Financial Performance - Broadcom's stock has dropped from a high of $414.61, reflecting market concerns about profitability rather than a decrease in demand [1][9] - Management has projected a decline of 100 basis points in consolidated gross margin for the first quarter, attributed to a higher mix of lower-margin AI-related revenue [2] - As AI revenue grows, overall gross margins may remain under pressure throughout the fiscal year, influenced by the balance between infrastructure software and semiconductor sales [3] Group 2: Strategic Focus - The company is focusing on improving operating leverage, expecting that higher revenue volumes will lead to stronger operating profit dollars, even with declining gross margin percentages [6] - Broadcom anticipates shipping more AI systems in the second half of the fiscal year, which will involve passing through additional component costs from third parties [7] - Despite potential further declines in gross margin percentages due to third-party costs, the company expects total gross margin dollars to rise and operating profit dollars to increase due to leverage [8]

Financial Data and Key Metrics Changes - Consolidated revenue for fiscal year 2025 grew 24% year on year to a record $64 billion, driven by AI semiconductors and VMware [5] - Q4 total revenue was a record $18 billion, up 28% year on year, exceeding guidance due to better-than-expected growth in AI semiconductors and infrastructure software [6] - Q4 consolidated adjusted EBITDA reached a record $12.12 billion, up 34% year on year [6][12] - Gross margin for Q4 was 77.9% of revenue, better than guidance due to higher software revenues and product mix [12] - Free cash flow in Q4 was $7.5 billion, representing 41% of revenue [15] Business Line Data and Key Metrics Changes - Semiconductor revenue for Q4 was $11.1 billion, with year-on-year growth accelerating to 35%, driven by AI semiconductor revenue of $6.5 billion, which was up 74% year on year [6][14] - Infrastructure software revenue for Q4 was $6.9 billion, up 19% year on year, with total contract value booked exceeding $10.4 billion [10][14] - Non-AI semiconductor revenue for Q4 was $4.6 billion, up 2% year on year, with a forecast of approximately $4.1 billion for Q1, flat from a year ago [9][10] Market Data and Key Metrics Changes - AI networking demand is strong, with a current order backlog for AI switches exceeding $10 billion [8] - Total order backlog for AI components is over $73 billion, expected to be delivered over the next 18 months [9] - Infrastructure software backlog increased to $73 billion, up from $49 billion a year ago [10] Company Strategy and Development Direction - The company expects AI revenue to continue to accelerate and drive most of its growth, while non-AI semiconductor revenue is anticipated to remain stable [11] - Infrastructure software revenue is expected to grow at a low double-digit percentage, driven by VMware growth [11] - The company is focusing on advanced packaging capabilities in Singapore to address supply chain challenges [34][35] Management's Comments on Operating Environment and Future Outlook - Management noted that spending momentum for AI is expected to continue accelerating into 2026 [5] - There is a recognition of the challenges in the non-AI semiconductor market, with limited signs of recovery in enterprise spending [10][80] - Management expressed confidence in the ability to meet demand despite potential supply chain bottlenecks [74] Other Important Information - The company announced a 10% increase in its quarterly common stock cash dividend to $0.65 per share, marking the 15th consecutive increase since initiating dividends in fiscal 2011 [17] - The company has extended its share repurchase program, with $7.5 billion remaining through the end of calendar year 2026 [17] Q&A Session Summary Question: Clarification on AI backlog and customer-owned tooling - Management confirmed the $73 billion backlog for AI components and emphasized that bookings are expected to continue growing [22][23] - Management downplayed the notion of customers moving towards complete self-sufficiency in tooling, suggesting that custom AI accelerators will still be necessary [25] Question: Impact of TPU sales on market dynamics - Management indicated that TPU sales are primarily a substitution for GPUs and that moving to custom accelerators is a long-term strategic decision [28] Question: Supply chain resiliency and bottlenecks - Management acknowledged challenges in the supply chain but expressed confidence in their ability to manage and mitigate these issues through advanced packaging initiatives [74] Question: Expectations for AI revenue growth in fiscal 2026 - Management noted that while they expect AI revenue to continue accelerating, they refrained from providing specific guidance for the full year [50] Question: Clarification on OpenAI contract - Management confirmed that the OpenAI agreement is a multi-year journey and will not contribute significantly in 2026 [54][57] Question: Diversity of growth among existing customers - Management indicated that growth is well spread out among existing customers, with significant contributions from XPUs and related components [66]

Core Insights - Broadcom's fourth-quarter fiscal 2025 results are expected to show significant growth driven by expanding AI offerings, particularly in custom AI accelerators (XPUs) [2][4] - AI revenues are projected to increase by 66% year over year to $6.2 billion, with XPUs contributing 65% of AI revenues [3][11] - The Infrastructure Software segment is anticipated to grow by 15% year over year, supported by VMware's increasing adoption and the launch of VCF 9.0 [6][8] Semiconductor Segment - Semiconductor revenues are expected to rise by 30% year over year to $10.7 billion in the fourth quarter, with a Zacks Consensus Estimate of $10.774 billion indicating a 31% increase from the previous year [4][10] - The strong demand for networking products, particularly Tomahawk 5 and 6, is contributing to this growth [3] AI Revenue Growth - AI revenues surged by 63% year over year to $5.2 billion in the third quarter of fiscal 2025, with XPUs being a major driver [3] - The anticipated growth in AI revenues reflects the increasing demand for application-specific integrated circuits necessary for training Generative AI models [2] Infrastructure Software Segment - Infrastructure Software revenue is expected to reach approximately $6.7 billion, marking a 15% year-over-year increase, with a Zacks Consensus Estimate of $6.733 billion [8] - The shift to a subscription-based model for VMware products and the adoption of VMware Cloud Foundation (VCF) are key factors in this growth [6][7] Gross Margin Impact - Despite the revenue growth from XPUs, these lower-margin products are expected to negatively impact Broadcom's gross margin, which is forecasted to decline by 70 basis points sequentially [9] - The adjusted EBITDA margin is expected to be 67%, indicating a 10-basis point decline on a sequential basis [9]

Core Viewpoint - Broadcom Inc. is expected to report stronger-than-anticipated quarterly results driven by increasing demand for artificial intelligence chips and data center networking products [1] Group 1: Financial Performance Expectations - Analyst Harlan Sur anticipates Broadcom will achieve total revenue of approximately $17.5 billion for the October quarter, with AI revenue projected between $6.5 billion and $6.7 billion, surpassing consensus estimates [3] - For the January quarter, management is expected to guide total revenue above $19 billion and AI revenue close to $8 billion, supported by momentum from AI networking and production ramps [4] - Over fiscal 2025, Broadcom is projected to generate around $20 billion to $21 billion in AI revenue, reflecting a year-over-year increase of approximately 60% [5] Group 2: Market Trends and Product Catalysts - The demand for AI products, improving non-AI semiconductor trends, and VMware revenue synergies are key drivers for Broadcom's growth [2] - Continued strength in products such as Google's Tensor Processing Unit (TPU) v6 and Tomahawk 5 networking switches are expected to contribute significantly to revenue [3] - Non-AI semiconductor markets are anticipated to recover gradually, while VMware is expected to maintain strong renewals and upsell to higher-value solutions [6] Group 3: Company Position and Financial Health - Broadcom is recognized for its best-in-class gross margins, operating margins, and free cash flow profile, with strong double-digit free cash flow growth forecasted [7] - The company is positioned as a leading supplier of custom AI ASICs and cloud networking chips, making it a top pick in the semiconductor sector [7] Group 4: Stock Performance - Broadcom shares increased by 2.68% to $400.68, nearing its 52-week high of $403.00 [8]

Core Insights - VMware is significantly investing in artificial intelligence (AI) technology and has integrated private AI capabilities into VMware Cloud Foundation (VCF) 9.0, allowing it to run AI workloads as effectively as bare metal servers [2][7] - The VCF 9.0 platform has been enhanced with features such as a security operations dashboard, cyber compliance, recovery, and the ability to create a virtual private cloud (VPC) seamlessly [3][7] - VMware's VCF is currently utilized by major institutions in India, including the State Bank of India, which plans to scale its virtual machines from 25,000 to over 40,000 by year-end to support increasing transaction volumes [4][7] Investment and Development - VMware has made a strategic decision to focus on AI integration within VCF 9.0 amid rising investments in AI across the industry [2][7] - Since the acquisition of VMware by Broadcom, there has been a strategic investment in research and development to deliver VCF 9.0 as a comprehensive software-defined platform [4][7] - The company aims to reduce friction between developers and IT teams, which often hampers the delivery of key applications, through the unified platform of VCF 9.0 [4][7]

Core Insights - Broadcom's Q3 2025 earnings report exceeded financial expectations, with revenues of approximately $15.95 billion, reflecting a growth rate of 22% and adjusted earnings per share of $1.69, a growth of over 36% [3][4][9] - The market initially reacted lukewarm to the earnings report, but a significant announcement during the earnings call led to a positive shift in stock performance, with shares trading up over 4% after-hours [4][10] - Broadcom secured a new customer for its AI application-specific integrated circuits (ASICs), referred to as XPUs, resulting in over $10 billion in orders for AI server racks from this customer [5][7] Financial Performance - Revenues for Q3 2025 were approximately $15.95 billion, slightly above the consensus estimate of $15.82 billion [3] - Adjusted earnings per share were reported at $1.69, beating Wall Street estimates by 3 cents and exceeding the expected growth rate of just under 34% [3][4] - Broadcom anticipates revenues of approximately $17.4 billion for Q4, indicating a growth rate of 24%, surpassing analyst expectations of $17.01 billion [3] Market Reaction - The initial market reaction to Broadcom's financials was neutral, with shares fluctuating slightly in after-hours trading [4] - Following the earnings call, shares closed up by more than 9% on September 5, validating the bullish sentiment surrounding the company's performance [10] AI Semiconductor Business - Broadcom's AI semiconductor revenue growth reached 63% in Q3 2025, exceeding the company's guidance of 60% [7] - The company expects AI semiconductor growth to accelerate to nearly 68% in Q4, indicating strong market interest in this segment [7] - The addition of a new XPU customer is seen as a significant development, suggesting potential for further customer conversions [6][9] Infrastructure Software Business - Over 90% of Broadcom's 10,000 largest VMware customers have transitioned to VMware Cloud Foundation (VCF), up from 87% in the previous quarter [8] - The latest VCF update, VCF 9.0, is positioned as a viable alternative to public cloud solutions, providing opportunities for cross-selling advanced services [8]

Core Insights - Broadcom is set to report its Q3FY'25 results, with investors keen to understand its growth trajectory following disappointing sales guidance from competitor Marvell in the custom silicon AI market [1] Company Overview - Broadcom is a leading designer and supplier of a wide range of semiconductor, networking, enterprise software, and security solutions, serving critical markets such as cloud, data center, and enterprise software [2] Financial Performance - In FY'24, Broadcom achieved a record $51.6 billion in sales, marking a 44% annual growth, with infrastructure software revenue reaching $21.5 billion due to successful VMware integration [3] - Semiconductor revenue also hit a record $30.1 billion, driven by AI revenue of $12.2 billion, which grew 220% year-on-year [3] Revenue Drivers - The Tomahawk 6 Ethernet switch and Jericho4 Ethernet fabric router are key products driving revenue growth by enabling large-scale AI cluster networking [4] - Broadcom's AI networking segment is the largest contributor to AI-related growth, with networking revenue increasing by 170% year-over-year, accounting for 40% of AI revenue in Q2 2025 [6] Growth Areas in AI - Key areas of growth for Broadcom amid the AI buildout include: - AI networking - Custom AI silicon/accelerators (XPUs) - Ethernet/Open networking - VMware-driven infrastructure software - Hyperscaler/cloud partnerships [5] Custom AI Silicon and Accelerators - Broadcom's custom silicon solutions, including AI accelerators and XPUs, are critical as hyperscalers seek differentiated compute capabilities for AI workloads, with expected demand acceleration into late 2026 [7] Infrastructure Software - The acquisition of VMware has positioned Broadcom's infrastructure software segment as a significant growth pillar, with VMware Cloud Foundation and enterprise adoption being key focus areas [10] Customer Base - Major cloud players like Google, Meta, Microsoft, and Amazon are central customers for Broadcom's networking and infrastructure software, with a focus on expanding content and wallet share within these accounts [11] Q3 Expectations - Broadcom reported record revenues of $15 billion in Q2, with AI revenue growing 46% year-over-year to over $4.4 billion, and expects AI semiconductor revenue to accelerate to $5.1 billion in Q3 [12][14]

Core Insights - Broadcom is collaborating with NVIDIA to integrate advanced AI technology into VMware Cloud Foundation, enabling enterprises to build and scale AI models in private cloud environments [1][2] - The partnership enhances the capabilities of VMware Private AI Foundation by supporting NVIDIA's latest Blackwell GPUs and networking technologies, addressing the growing demand for AI infrastructure [2][5] Company Developments - The integration will support NVIDIA RTX PRO 6000 Server Edition GPUs, which are designed for efficient co-hosting of demanding virtual desktop infrastructure (VDI) and AI workloads [5] - Future releases of VMware Cloud Foundation are expected to support NVIDIA Blackwell B200 GPUs, which will provide high performance for large-scale AI and high-performance computing (HPC) applications [5] Infrastructure Enhancements - VMware Cloud Foundation will incorporate NVIDIA ConnectX-7 NICs and BlueField-3 400G DPUs, enabling advanced capabilities for high-speed AI model training and data transfer [5] - The integration will maintain core VCF capabilities, allowing customers to deploy NVIDIA innovations while retaining familiar operational workflows and enterprise-grade virtualization features [5]

Core Viewpoint - The semiconductor company Broadcom is experiencing significant growth driven by the increasing adoption of artificial intelligence (AI) technologies, positioning it to potentially reach a $2 trillion market cap in the near future [3][10]. Company Performance - Broadcom reported record revenue of $15 billion in Q2, marking a 20% year-over-year increase, with adjusted earnings per share rising 44% to $1.58 [6]. - The company has successfully integrated VMware into its operations, with 87% of its 10,000 largest customers adopting VMware Cloud Foundation, contributing to an increase in infrastructure software operating margin from 60% to 76% [7]. Market Position and Growth Potential - Broadcom's market cap is approximately $1.3 trillion, and it plays a crucial role in the AI ecosystem, with its technology being integral to mobile, broadband, cable, and data center operations [3][5]. - Wall Street estimates project Broadcom's revenue to reach $62.74 billion by 2025, with a forward price-to-sales (P/S) ratio of around 20, indicating a need for approximately $97 billion in annual revenue to support a $1 trillion market cap [9]. - The company is expected to achieve a $1 trillion market cap as early as 2028, with annual revenue growth projected at 19% over the next five years [10]. AI Market Dynamics - The serviceable addressable market for Broadcom's AI revenue from its existing hyperscale customers is estimated to be between $60 billion and $90 billion by fiscal 2027, excluding new customers recently announced [11]. - The generative AI market is projected to reach between $2.6 trillion and $4.4 trillion annually over the next decade, with potential doubling when including embedded software contributions [12]. Stock Performance - Broadcom's stock has appreciated significantly, increasing by 2,070% over the past decade, compared to a 205% gain for the S&P 500, justifying its premium valuation at 34 times next year's expected earnings [13].