Broadcom Q2 Earnings Call Highlights

Key Points

• Broadcom posted record fiscal Q2 revenue of $22.2 billion, up 48% year over year, with record operating margin of 67% and free cash flow of $10.3 billion. CEO Hock Tan said demand for the company’s AI semiconductors remains “simply insatiable.”
• AI semiconductor revenue surged to $10.8 billion, up 143% from a year earlier, and Broadcom raised its outlook sharply. The company now expects $16 billion in AI semiconductor revenue in Q3 and $56 billion for the full fiscal year, with fiscal 2027 expected to exceed $100 billion.
• Software and networking also remained strong, with Infrastructure Software revenue rising 9% to $7.2 billion and VMware Cloud Foundation 9.1 gaining traction. Tan said networking still accounts for a major share of AI revenue, though he sees it normalizing closer to 30% over time rather than near 40%.

Broadcom NASDAQ: AVGO reported record fiscal second-quarter 2026 revenue and issued a sharply higher outlook for the current quarter, as President and CEO Hock Tan said demand for the company’s artificial intelligence semiconductors remains “simply insatiable.”

On the earnings call, Tan said total revenue for the quarter reached $22.2 billion, up 48% from a year earlier and above the company’s guidance. Operating margin was a record 67%, while adjusted EBITDA was 69% of revenue. Broadcom’s results and commentary focused heavily on AI semiconductor demand, which continues to reshape the company’s revenue mix.

AI semiconductor revenue rose to a record $10.8 billion in the quarter, up 143% year over year and above Broadcom’s outlook. Tan said bookings for AI semiconductors exceeded $30 billion during the quarter, compared with the $10.8 billion shipped.

AI Semiconductor Outlook Rises

Tan said Broadcom expects AI semiconductor revenue to double in the second half of fiscal 2026 compared with the first half. For the third quarter, the company expects AI semiconductor revenue of $16 billion, up more than 200% year over year. For the full fiscal year, Tan said Broadcom expects AI semiconductor revenue of $56 billion, up approximately 180% from fiscal 2025.

Looking further ahead, Tan reiterated that fiscal 2027 AI semiconductor revenue is expected to exceed $100 billion. In response to a question from JPMorgan analyst Harlan Sur, Tan said the company remains on a trajectory that is “very much on track, if not stronger,” but declined to provide a more specific quarterly guide for fiscal 2027.

Tan also said the company expects AI semiconductor revenue to keep growing in fiscal 2028, citing engagements with six core customers. He discussed agreements or programs involving Google, Anthropic, OpenAI and Meta, as well as two additional customers that Broadcom did not name during the call.

Tan said Broadcom entered into a long-term agreement with Google in April to develop and supply multiple generations of TPUs and AI networking. He also said Broadcom has agreements involving TPU-based compute access for Anthropic, including more than one gigawatt in 2026 and another five gigawatts beginning in 2027. For OpenAI, Tan said Broadcom has delivered silicon and remains on track for production in late 2026, with a contractual commitment to deploy 1.3 gigawatts in 2027 as part of a larger 10-gigawatt agreement by 2029. For Meta, Tan said Broadcom expects to deploy 3 gigawatts through the end of 2028 under a partnership involving MTIA XPUs, with an initial 1-gigawatt order set to begin delivery in the second half of 2027.

Networking Remains a Key AI Driver

Tan said networking represented almost 40% of Broadcom’s second-quarter AI revenue. He emphasized that networking is critical to building scalable XPU and GPU clusters, adding that Broadcom has “at least one generation” of technology and product leadership in networking.

During the question-and-answer portion of the call, Goldman Sachs analyst Jim Schneider asked whether networking would remain near 40% of AI revenue as custom XPU ramps accelerate. Tan said the figure likely represented a high point, noting that a more typical level would be closer to 30% of AI revenue.

Tan also described Broadcom’s technology portfolio across rack-scale and data-center AI connectivity, including Ethernet switches, co-packaged copper, co-packaged optics, DSPs, lasers and fabric solutions. When Deutsche Bank analyst Ross Seymore asked about rack-scale versus chip-scale dynamics, Tan and Chief Financial Officer Kirsten Spears clarified that Broadcom is “in the chip business only.”

Software Revenue Grows, VMware Cloud Foundation Highlighted

Broadcom’s Infrastructure Software revenue was $7.2 billion in the second quarter, up 9% year over year and in line with guidance. Tan said bookings remained strong and annual recurring revenue grew 17% year over year.

For the third quarter, Broadcom expects Infrastructure Software revenue of approximately $8.9 billion, up 31% year over year. Tan highlighted the release of VMware Cloud Foundation 9.1, saying the product focuses on infrastructure efficiency, security and support for enterprise AI inferencing workloads. He said strong global server demand is driving “extremely strong” deployment of VCF 9.1 for on-premises cloud computing.

In response to a question from Citi analyst Atif Malik about whether agentic AI is affecting software renewals or growth, Tan said Broadcom is not seeing a negative impact. Instead, he said demand for CPU cores sold alongside GPUs is helping accelerate VMware growth, and he said the company does not expect AI to affect its infrastructure software products over the long term.

Margins and Cash Flow

Spears said consolidated gross margin was 77.1% in the quarter, down 230 basis points year over year as semiconductors became a larger share of the company’s product mix. Operating income was a record $14.9 billion, up 52% from a year earlier. Spears said operating margin increased 200 basis points year over year to 67.3% because operating expenses remained relatively flat.

In the Semiconductor Solutions segment, revenue was a record $15 billion, up 79% year over year, driven by AI. Semiconductor revenue represented 68% of total revenue, while AI semiconductor revenue represented 49% of total revenue. Segment operating margin rose 460 basis points year over year to 62%.

Infrastructure Software generated a 93% gross margin and an operating margin of approximately 79%, up 310 basis points from a year earlier.

Spears said free cash flow was a record $10.3 billion, representing 46% of revenue. Broadcom ended the quarter with $19.6 billion in cash, up from $14.2 billion in the prior quarter. Inventory rose to $4.33 billion as the company secured supply to support AI demand, with days of inventory increasing to 86 from 68 in the prior quarter.

Broadcom paid $3.1 billion in cash dividends during the quarter, based on a quarterly common stock cash dividend of $0.65 per share.

Third-Quarter Guidance

For fiscal third-quarter 2026, Broadcom guided for consolidated revenue of $29.4 billion, up 84% year over year. The company expects semiconductor revenue of approximately $20.5 billion, up 124% year over year, including $16 billion in AI semiconductor revenue. Non-AI semiconductor revenue is expected to be approximately $4.5 billion, up 12% from a year earlier.

Spears said consolidated gross margin is expected to decline to approximately 74% in the third quarter as AI semiconductors become a larger portion of total revenue. She said the decline does not reflect a structural change in semiconductor margins, but rather the mix between semiconductors and infrastructure software. Broadcom expects third-quarter operating margin of approximately 67% and adjusted EBITDA of approximately 68% of revenue.

Ji Yoo, Broadcom’s head of investor relations, also noted during the call that Spears will retire on June 12 after 12 years of leadership. Incoming Chief Financial Officer Amie Thuener joined the call.

About Broadcom NASDAQ: AVGO

Broadcom Inc NASDAQ: AVGO is a global technology company that designs, develops and supplies semiconductor and infrastructure software solutions for a broad range of markets. The company's semiconductor business provides components and systems for wired and wireless communications, enterprise and cloud storage, networking and broadband access, serving original equipment manufacturers, cloud service providers, telecommunications carriers and industrial customers worldwide. Broadcom is headquartered in Irvine, California, and operates globally with research, development and sales organizations across North America, Europe and Asia.

On the semiconductor side, Broadcom's portfolio includes system-on-chip (SoC) and application-specific integrated circuit (ASIC) solutions, radio-frequency and connectivity components, Ethernet switching and PHY devices, storage adapters and controllers, optical transceivers and other networking silicon.

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