Broadcom Inc. (AVGO) Q1 2025 Earnings Summary

Executive Summary

• Record Q1 2025 results: revenue $14.92B (+25% YoY), adjusted EBITDA $10.08B (68% margin), driven by AI semiconductors ($4.1B, +77% YoY) and infrastructure software ($6.7B, +47% YoY) .
• Q2 2025 guidance: revenue ~$14.9B (+19% YoY) and adjusted EBITDA ~66% of revenue; non-GAAP tax rate ~14%; gross margin expected down ~20 bps sequentially on mix .
• Semiconductor segment +11% YoY to $8.21B; infrastructure software +47% YoY to $6.70B as VMware upsell to VCF and subscription transition progress (70% of top 10k customers on VCF; >60% moved to subscription) .
• Management sees continued AI ramp (Q2 AI revenue $4.4B) and expanding hyperscaler engagements (three shipping in volume; four in deep design engagement), reinforcing multiyear XPU and Ethernet leadership narrative .

What Went Well and What Went Wrong

What Went Well

• “Record first quarter revenue and adjusted EBITDA were driven by both AI semiconductor solutions and infrastructure software” with AI revenue $4.1B (+77% YoY) and infrastructure software $6.7B (+47% YoY) .
• CFO: adjusted EBITDA 68% of revenue, above guidance (66%), supported by higher infrastructure software mix and favorable semi mix; operating margin 66% .
• VMware strategy: converting perpetual to full subscription (>60% progress) and upselling to full-stack VCF; ~70% of largest 10k customers adopted VCF; 39 enterprise customers for VMware Private AI Foundation (with NVIDIA) .

What Went Wrong

• Non‑AI semis: slow recovery; wireless seasonality; industrial resale down double digits; enterprise networking flattish as channels digest inventory .
• Gross margin expected to decline ~20 bps sequentially in Q2 on mix within semis and infra software; EBITDA margin guided to ~66% as R&D ramps on leading-edge AI .
• S&P Global Wall Street consensus estimates unavailable via our data source, limiting direct beat/miss quantification this quarter (see Estimates Context).

Financial Results

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “We beat our guidance for AI revenue of $3.8 billion due to stronger shipments of networking solutions to hyperscalers… we expect Q2 AI revenue to grow to $4.4 billion” .
• CEO: “We’re taping out the industry’s first 2‑nanometer AI XPU packaged in 3.5D… driving towards a 10,000 teraflops XPU” .
• CEO: “Approximately 70% of our largest 10,000 customers have adopted VCF… 39 enterprise customers for the VMware Private AI Foundation” .
• CFO: “Gross margin was 79.1%… operating margin at 66%… adjusted EBITDA was a record $10.1 billion or 68% of revenue, above our guidance” .
• CFO: “In Q2… consolidated gross margin [down] ~20 bps sequentially… adjusted EBITDA ~66%… non‑GAAP tax rate ~14%” .

Q&A Highlights

• Expansion of hyperscaler engagements: now four additional deep design engagements beyond the three volume customers; design wins defined as deployment at scale, not small pilots .
• Networking and Ethernet leadership: customers driven by proven performance; roadmap advancing from 800G to 1.6T and 3.2T; Tomahawk 5/6 and Jericho architectures address scaling needs .
• AI compute/network mix: Q1 surge in networking (60/40 compute/network) seen as a blip; norm expected ~70/30 over time .
• Regulatory/tariffs: too early to assess tariff impacts; management not concerned about AI diffusion rule impacts on current shipments .
• M&A: not a focus near term; management prioritizing AI and VMware execution .

Estimates Context

• Wall Street consensus estimates via S&P Global were unavailable due to a provider request‑limit error at time of retrieval; therefore, we cannot quantify beat/miss versus consensus for Q1 2025 or Q2 guidance. We will update when S&P Global access is restored.
• Notably, management beat internal Q1 AI revenue guidance ($3.8B guided vs $4.1B delivered), and guided Q2 AI to $4.4B, underscoring the AI driver for semi segment growth .

Key Takeaways for Investors

• AI remains the primary growth and margin driver: $4.1B AI in Q1 and $4.4B guided for Q2, with XPU and Ethernet switching roadmaps accelerating; watch for 2nm XPU and Tomahawk 6 sampling milestones .
• Software stabilizes and scales: VMware subscription transition and VCF upsell support structurally higher margins (92.5% segment GM) and cash generation; Q2 infra software guided to $6.5B (+23% YoY) .
• Mix headwinds near term: gross margin guided down ~20 bps in Q2 on mix; EBITDA margin guided to ~66% as AI R&D investments ramp—model modest sequential margin compression .
• Non‑AI semis recovery is uneven: enterprise networking flattish; industrial weak; broadband/ server storage improving—position sizing should reflect ex‑AI cyclicality .
• Capital allocation remains shareholder‑friendly: dividend maintained at $0.59/share; subsequent authorization for up to $10B repurchases adds flexibility (post‑Q1) .
• Watch regulatory headlines but management tone remains steady: limited concern on AI diffusion rules; tariff impacts unclear—headline risk more than fundamental at present .
• Near‑term trading: catalysts include AI product roadmap disclosures (2nm XPU, Tomahawk 6 sampling), hyperscaler deployment updates, and confirmation of Q2 revenue/AI targets; monitor mix effects on margins in upcoming print .

Note: All figures and quotes are sourced from Broadcom’s Q1 FY2025 8‑K/press release and earnings call transcript. 

References:

• Q1 FY2025 8-K and Exhibit 99.1 press release:
• Q1 FY2025 earnings call transcript:
• Q4 FY2024 8-K:
• Q3 FY2024 8-K:
• Relevant Q1 press releases: Solidigm SSD controller collaboration (Jan 23, 2025) ; Q1 earnings announcement scheduling (Feb 6, 2025) ; Share repurchase authorization (Apr 7, 2025, post‑Q1)