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Broadcom Inc. (AVGO) Q2 2025 Earnings Summary

Executive Summary

  • Broadcom delivered record revenue of $15.00B (+20% y/y) and non-GAAP EPS of $1.58 in Q2 FY25, modestly beating S&P Global consensus on revenue and EPS; company-reported Adjusted EBITDA was $10.00B (67% of revenue) .
  • AI momentum remained the key catalyst: AI semiconductor revenue grew 46% y/y to >$4.4B, with Ethernet-based AI networking representing ~40% of AI revenue; management guides AI semiconductor revenue to $5.1B in Q3 (+60% y/y), marking the 10th consecutive quarter of AI growth .
  • Guidance: Q3 FY25 revenue ~$15.8B (+21% y/y) and Adjusted EBITDA ≥66%; segment guides called for semis ~$9.1B, software ~$6.7B; gross margin guided down ~130bps q/q on higher XPU mix; non-GAAP tax rate maintained at 14% .
  • Capital return remained robust: $2.785B cash dividends ($0.59/share) and $4.216B share repurchases/eliminations in Q2; Board authorized $10B buyback program in April, supporting share count moderation despite growth from employee vestings .
  • Stock narrative catalyst: accelerating AI networking and XPU programs (Tomahawk 6 launch at 102.4Tbps), sustained AI revenue trajectory into FY26, and continued VMware conversion to VCF (VCF adoption at >87% of top 10,000 customers), though mix shifts to XPUs pressure margins sequentially .

What Went Well and What Went Wrong

What Went Well

  • AI growth and mix: “Q2 AI revenue grew 46% y/y to over $4.4 billion… robust demand for AI networking,” with AI networking ~40% of AI revenue and strong traction for Ethernet scale-up and scale-out fabrics .
  • VMware/Infrastructure software execution: Infrastructure software revenue rose to $6.596B (+25% y/y), above outlook in Q2; VCF adoption exceeded 87% among top 10,000 customers, driving double-digit ARR growth .
  • Cash generation and returns: Record free cash flow of $6.411B (+44% y/y), dividends of $2.785B, and $4.216B of repurchases/eliminations returned ~$7B to shareholders; DSO improved to 34 days vs. 40 a year ago .

What Went Wrong

  • Margin dilution from XPU mix: Q3 consolidated gross margin guided down ~130bps sequentially primarily on higher XPU mix; management reiterated XPU margins are “slightly lower” than rest of semis (ex-wireless) .
  • Non-AI semis sluggish: Non-AI semiconductors hovered around $4B, with wireless/industrial flat-to-down and industrial down; management views recovery as slow and near the bottom .
  • Regulatory/geopolitical uncertainty: Management cannot provide comfort on export controls given rapidly changing rules; emphasizes uncertainty around bilateral agreements .

Financial Results

Consolidated Summary vs Prior Quarters

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$14.054 $14.916 $15.004
GAAP Diluted EPS ($)$0.90 $1.14 $1.03
Non-GAAP Diluted EPS ($)$1.42 $1.60 $1.58
Adjusted EBITDA ($USD Billions)$9.089 $10.083 $10.001
Adjusted EBITDA Margin (%)65% 68% 67%
Gross Margin (%)76.9% 79.1% 79.4%
Operating Margin (%)63% 66% 65%
Free Cash Flow ($USD Billions)$5.482 $6.013 $6.411

Segment Breakdown

Segment RevenueQ4 2024Q1 2025Q2 2025
Semiconductor Solutions ($USD Millions, % of total)$8,230; 59% $8,212; 55% $8,408; 56%
Infrastructure Software ($USD Millions, % of total)$5,824; 41% $6,704; 45% $6,596; 44%
Total Net Revenue ($USD Millions)$14,054 $14,916 $15,004

KPIs and Balance Sheet

KPIQ4 2024Q1 2025Q2 2025
AI Semiconductor Revenue ($USD Billions)$3.7 $4.1 >$4.4
DSO (days)29 30 34
Inventory ($USD Billions)$1.760 $1.908 $2.017
Inventory Days (days)—65 69
Cash & Equivalents ($USD Billions)$9.348 $9.307 $9.472
Gross Principal Debt ($USD Billions)$69.8 $68.8 $69.4; repaid $1.6 post-Q2
Dividend per Share ($)$0.59 (set for FY25) $0.59; paid $2.774B 12/31/24 $0.59; paid $2.785B 3/31/25
Share Repurchases/Eliminations ($USD Billions)—$2.0B (withholding on vesting) $4.216B total (incl. $2.450B buybacks; $1.766B withholdings)

Results vs S&P Global Consensus

MetricQ2 2025 ConsensusQ2 2025 Actual
Revenue ($USD Billions)14.976*15.004
Primary EPS ($)1.571*1.58
EBITDA ($USD Billions, SPGI definition)9.932*8.074*

Values with asterisks are retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Revenue ($USD Billions)Q3 FY25N/A~$15.8 Introduced
Adjusted EBITDA Margin (%)Q3 FY25N/A≥66% Introduced
Gross Margin (seq change)Q3 FY25Down ~20bps q/q for Q2 Down ~130bps q/q Lower
Semiconductor Revenue ($USD Billions)Q3 FY25~$8.4 (Q2) ~$9.1 Raised
AI Semiconductor Revenue ($USD Billions)Q3 FY25~$4.4 (Q2) ~$5.1 Raised
Infrastructure Software Revenue ($USD Billions)Q3 FY25~$6.5 (Q2) ~$6.7 Raised
Non-GAAP Tax Rate (%)FY25/Q3~14% 14% Maintained
Dividend per Share ($)FY25$0.59 $0.59 (Q2 dividend paid; Q3 declared) Maintained
Diluted Share Count (Non-GAAP; Billions)Q2 vs Q3~4.947 (Q2 expected) ~4.971 (Q3 expected) Higher

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
AI revenue trajectory$12.2B FY24 AI; Q1 AI $4.1B; reiterated SAM $60–$90B in FY27 Q2 AI >$4.4B; guides Q3 AI $5.1B; sees FY25 growth rate sustaining into FY26 Accelerating, sustained
Ethernet scale-up/scale-outEmphasized Ethernet wins; Jericho3-AI deployments AI networking ~40% of AI; scale-up rapidly converting to Ethernet; Tomahawk 6 launched (102.4Tbps) Strengthening
Margins mix (XPU dilutive)Semis GM ~67% in Q4; warned mix impacts margins Q3 GM down ~130bps on higher XPUs; XPU margins slightly lower Dilutive near term
VMware/VCF conversion & ARR>4,500 VCF customers; ABV ramp VCF adopted by >87% of top 10k; infra SW GM ~93% Execution strong
Regulatory/export controlsNo immediate concern in Q1; uncertainty persists Management cannot provide comfort; rules changing Elevated uncertainty
R&D execution (2nm XPU; Tomahawk)Taped out 2nm XPU; doubled Tomahawk 5 radix Tomahawk 6 announced; continued investment in leading-edge AI Advancing
Capital allocation/deleveragingDividend to $0.59; intent to pay down debt $2.8B dividends; $4.2B buybacks; focus on reducing interest expense Ongoing

Management Commentary

  • CEO Hock Tan: “Q2 AI revenue grew 46% year-over-year to over $4.4 billion driven by robust demand for AI networking… We expect growth in AI semiconductor revenue to accelerate to $5.1 billion in Q3” .
  • CFO Kirsten Spears: “Consolidated revenue grew 20% year-over-year to a record $15.0 billion… Free cash flow was a record $6.4 billion, up 44% year-over-year… we returned $7.0 billion to shareholders” .
  • On scale-up Ethernet: “Scale-up is very rapidly converting to Ethernet now… for our… hyperscale customers, scale-up is very much Ethernet” .
  • On margin dynamics: “We’ve historically said that the XPU margins are slightly lower than the rest of the business… the 130 basis point decline is being driven by more XPUs” .
  • On FY26 trajectory: “We… anticipate now our fiscal 2025 growth rate of AI semiconductor revenue to sustain into fiscal 2026” .

Q&A Highlights

  • Inference ramp and mix: Management sees increased deployment of XPUs for inference to monetize platforms, sustaining AI growth into FY26; networking remains strong alongside XPUs .
  • Scale-up networking and Ethernet: Rapid conversion to Ethernet for scale-up; Tomahawk 6 demand strong; scale-up density significantly increases switch content .
  • Margin guide clarity: Gross margin guided down ~130bps in Q3 on XPU mix; reiterated XPU margins are slightly lower than rest of semis (ex-wireless) .
  • Export controls: Company cannot provide assurance given dynamic policy environment; monitoring evolving rules .
  • VMware conversion timeline: Typical 3-year contracts; renewals > halfway through; ~1–1.5 years of conversion remaining .

Estimates Context

  • Q2 FY25 results modestly beat S&P Global consensus: Revenue $15.004B vs $14.976B*, EPS $1.58 vs $1.571*; under SPGI’s EBITDA definition, actual $8.074B* vs consensus $9.932B* (note definition differences vs company “Adjusted EBITDA” of $10.001B) .
  • Q3 FY25 guidance vs consensus: Company guides revenue ~$15.8B vs consensus ~$15.823B*, broadly in line; EPS consensus $1.663* ahead of report. Number of estimates: Revenue 34, EPS 34 for Q3*.

Values with asterisks are retrieved from S&P Global.

Key Takeaways for Investors

  • AI momentum is broad-based and durable: Continued acceleration in AI semis and robust AI networking support sustained double-digit growth into FY26, with Q3 AI revenue guided to $5.1B .
  • Mix shift implications: Stronger XPU mix supports revenue but modestly dilutes gross margins sequentially; operating leverage remains high given disciplined OpEx and software margins .
  • Ethernet wins strategic: Rapid adoption of Ethernet for scale-up and scale-out fabrics positions Broadcom’s Tomahawk/Jericho/Thor platforms as key beneficiaries; Tomahawk 6 expands the performance frontier .
  • VMware integration on track: High-90s software gross margins and >87% VCF adoption underpin recurring revenue growth and margin resilience .
  • Capital return discipline: Strong FCF funds dividends and buybacks; $10B repurchase authorization adds flexibility while de-leveraging reduces interest expense .
  • Watch margin guide and estimate revisions: Q3 GM guide down ~130bps on XPU mix could temper near-term EPS leverage; consensus likely adjusts for mix dynamics and SPGI EBITDA treatment .
  • Near-term trading lens: Any incremental datapoints on AI networking attach and XPU ramps (including Tomahawk 6 adoption) and clarity on export rules could drive sentiment and multiple expansion .

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