Sign in

Broadcom Inc. (AVGO) Q3 2025 Earnings Summary

Executive Summary

  • Broadcom delivered record Q3 FY2025 revenue of $15.95B (+22% YoY) and non-GAAP EPS of $1.69, modestly beating Wall Street consensus on revenue and EPS; adjusted EBITDA was $10.70B (67% of revenue) . Results were driven by AI semiconductors ($5.2B, +63% YoY) and VMware-led infrastructure software .
  • Management guided Q4 revenue to ~$17.4B (+24% YoY) and adjusted EBITDA to 67% of revenue, with AI semiconductor revenue expected at ~$6.2B (+66% YoY) and infrastructure software at ~$6.7B .
  • Mix shift toward XPUs and wireless will compress gross margin ~70 bps sequentially in Q4; Q3 gross margin was 78.4% and operating margin 65.5% .
  • Backlog reached ~$110B and a fourth XPU customer placed >$10B of orders, reinforcing 2026 AI growth acceleration; CEO Hock Tan’s tenure extended through at least 2030, signaling continuity in AI strategy .

What Went Well and What Went Wrong

What Went Well

  • AI momentum: AI semiconductor revenue grew to $5.2B (+63% YoY), extending a 10-quarter growth streak; XPUs represented ~65% of AI revenue, with share gains across three customers and a newly qualified fourth customer with >$10B orders for AI racks . “The network is the computer…customers are facing challenges as they scale to clusters beyond 100,000 compute nodes” .
  • Software beat: Infrastructure software revenue was $6.8B (+17% YoY), above outlook, supported by strong bookings and VMware Cloud Foundation 9.0 release enabling on‑prem and cloud AI workloads . “We released VMware Cloud Foundation 9.0…enables enterprises to run any application workload, including AI workloads” .
  • Strong profitability and FCF: Adjusted EBITDA of $10.7B (67% margin) exceeded guidance; free cash flow reached $7.0B (44% of revenue) .

What Went Wrong

  • Non-AI semis sluggish: Non-AI semiconductor revenue was ~$4.0B and “slow to recover,” with enterprise networking and server storage down sequentially; recovery likely U-shaped into mid/late 2026 .
  • Margin headwinds: Mix shift to XPUs and wireless (lower margin items) pressured consolidated gross margin sequentially; Q4 guide implies ~70 bps further compression .
  • Cyclicality visibility: While bookings are up (>20% YoY) in non-AI semis, management emphasized lack of sustained uptrends outside broadband, limiting near-term conviction on a broad cyclical rebound .

Financial Results

Consolidated Results (oldest → newest)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$14.916 $15.004 $15.952
Non-GAAP Diluted EPS ($)$1.60 $1.58 $1.69
GAAP Diluted EPS ($)$1.14 $1.03 $0.85
Adjusted EBITDA ($USD Billions)$10.083 $10.001 $10.702
Gross Margin %79.1% 79.4% 78.4%
Operating Margin %66.0% 65.0% 65.5%
Cash from Operations ($USD Billions)$6.113 $6.555 $7.166
Free Cash Flow ($USD Billions)$6.013 $6.411 $7.024
Capital Expenditures ($USD Millions)$100 $144 $142

Segment Breakdown (Revenue and Mix)

SegmentQ1 2025Q2 2025Q3 2025
Semiconductor Solutions ($USD Billions; % of Total)$8.212; 55% $8.408; 56% $9.166; 57%
Infrastructure Software ($USD Billions; % of Total)$6.704; 45% $6.596; 44% $6.786; 43%

AI and Non-AI Semiconductors

MetricQ1 2025Q2 2025Q3 2025
AI Semiconductor Revenue ($USD Billions)$4.1 $4.4+ $5.2
Non-AI Semiconductor Revenue ($USD Billions)~$4.1 ~$4.0 ~$4.0

Operating KPIs

KPIQ1 2025Q2 2025Q3 2025
Days Sales Outstanding (days)30 34 37
Inventory ($USD Billions; Days on Hand)$1.9; 65 $2.0; 69 $2.2; 66
Cash & Equivalents ($USD Billions)$9.307 $9.472 $10.718
Gross Principal Debt ($USD Billions)$68.8 $67.8 (post-Q2 actions) $66.3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Revenue ($USD Billions)Q4 2025N/A~$17.4 New issuance
Adjusted EBITDA (% of Revenue)Q4 2025N/A67% New issuance
Semiconductor Revenue ($USD Billions)Q4 2025N/A~$10.7 New issuance
AI Semiconductor Revenue ($USD Billions)Q4 2025N/A~$6.2 New issuance
Non-AI Semiconductor Revenue ($USD Billions)Q4 2025N/A~$4.6 New issuance
Infrastructure Software Revenue ($USD Billions)Q4 2025N/A~$6.7 New issuance
Gross Margin (Sequential)Q4 2025N/ADown ~70 bps New issuance
Non-GAAP Tax RateQ4/FY 2025~14% (unchanged) 14% Maintained
Non-GAAP Diluted Share Count (billions)Q4 2025~4.97 ~4.97 Maintained
Quarterly Dividend ($/share)Q3/Q4 cadence$0.59 $0.59 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI XPUs growth & customersThree core XPU customers; four engaged prospects; expectation of million-XPU clusters by 2027; inference demand rising alongside training Fourth significant customer qualified; >$10B orders; 2026 AI growth seen accelerating; XPUs now ~65% of AI revenue Accelerating
AI networking (Ethernet scale-up/out/across)Tomahawk 6 (102.4 Tbps) announced; AI networking ~40% of AI revenue; Ethernet favored for scale-up and scale-out Launch Jericho 4 for scale across (>200k nodes, 100km+); reiterate Ethernet leadership; networking share likely declines vs XPUs over time Expanding capabilities; mix shifts to XPUs
VMware Cloud Foundation (VCF) adoption~70% adoption in top 10k (Q1); ARR growth double digits; VCF virtualizes GPUs with NVIDIA collaboration VCF 9.0 released; “way over 90%” of top 10k bought VCF; multi-year deployment/expansion phase Sustained uptrend
Non-AI semis cycleSlow recovery; broadband improving; mix seasonal; non-AI guided flat around $4B in Q2 U-shaped recovery; Q4 non-AI up low-single digits YoY; bookings up ~23% Gradual recovery
Capital allocation & debtDebt reduction priority; opportunistic buybacks; target ≤2x net debt/EBITDA over time Continued dividends; no change to capital priorities Balanced
Regulatory/exportNo comfort on export controls; dynamic environment No explicit change; cautious stance persists Uncertain

Management Commentary

  • “In our fiscal Q3 2025, total revenue was a record $16 billion, up 22% year-on-year…adjusted EBITDA was a record $10.7 billion” .
  • “AI semiconductor revenue of $5.2 billion…accelerated to 65% of our AI revenue…we have secured over $10 billion of orders of AI racks based on our XPUs” .
  • “We released VMware Cloud Foundation 9.0…enables enterprises to run any application workload, including AI workloads, on virtual machines and on modern containers” .
  • “For Q4 2025, we forecast AI semiconductor revenue to be approximately $6.2 billion…we expect Q4 consolidated revenue to approximately $17.4 billion…and adjusted EBITDA to be 67% of revenue” .
  • “Gross margin was 78.4%…operating margin increased 20 bps sequentially to 65.5%…free cash flow in the quarter was $7 billion” .

Q&A Highlights

  • Fourth XPU customer: Orders >$10B with shipments starting and ending in Q3 FY2026; XPUs expected to gain share at existing customers over multi-generational roadmap .
  • Non-AI semis recovery: Year-over-year positive in Q4 but modest; broadband strongest; overall U-shaped recovery expected into mid/late 2026; bookings up ~23% YoY .
  • Backlog and mix: Consolidated backlog ~$110B with at least ~50% semiconductors; predominantly AI .
  • Mix and margins: Wireless seasonality and XPUs lower margin vs average; consolidated gross margin guide down ~70 bps sequentially .
  • Networking roadmap: Jericho 4 enables “scale across” across data centers (~100km) with deep buffering and congestion control; Ethernet positioned to prevail over proprietary protocols .

Estimates Context

  • Q3 FY2025 vs S&P Global consensus: Revenue $15.95B vs $15.82B*; EPS $1.69 vs $1.663*; both modest beats. Adjusted EBITDA reported $10.70B vs S&P “EBITDA Consensus Mean” $10.46B*, noting potential definitional differences versus company-adjusted EBITDA . Consensus estimate counts: EPS (34*), Revenue (34*) [GetEstimates].
MetricQ3 2025 Consensus*Q3 2025 Actual
Revenue ($USD Billions)$15.823$15.952
Primary EPS ($)$1.663$1.69
EBITDA ($USD Billions)$10.459$10.702 (Adjusted)
# of Estimates (EPS/Revenue)34 / 34N/A

Values retrieved from S&P Global.*

Trailing quarters vs consensus:

  • Q1: Revenue $14.916B actual vs $14.591B consensus*; EPS $1.60 actual vs $1.508* [GetEstimates].
  • Q2: Revenue $15.004B actual vs $14.976B*; EPS $1.58 actual vs $1.571* [GetEstimates].

Key Takeaways for Investors

  • Broad-based beat: Revenue and EPS modestly exceeded consensus; adjusted EBITDA achieved 67% of revenue. The beat was powered by AI semiconductors and VMware software mix [GetEstimates].
  • AI acceleration into 2026: Fourth XPU customer orders and backlog strength support >60% AI growth trajectory with XPUs gaining mix share vs networking in 2026; narrative remains a powerful catalyst .
  • Near-term margin pressure: Higher XPUs and wireless mix will compress gross margin ~70 bps sequentially in Q4; traders should watch margins vs guide and XPUs ramp timing .
  • Non-AI semis: U-shaped recovery with broadband leading; limited visibility elsewhere suggests cautious positioning on cyclical rebound headlines .
  • Software resilience: VCF 9.0 and >90% adoption in top 10k underline durable ARR and margin support amid AI enablement; cross-sell to advanced services (security, DR, AI) provides medium-term upside .
  • Capital allocation discipline: Continued dividends and debt management; opportunistic buybacks possible, but deleveraging prioritized—supports valuation floor .
  • Strategy continuity: CEO extension through 2030 reduces execution risk in multi-year AI and VCF roadmaps .

Additional Relevant Press Releases (Q3 FY2025 context)

  • Tomahawk 6 shipping: World’s first 102.4 Tbps Ethernet switch; enables unified scale-up/scale-out AI fabrics and supports CPO—ecosystem momentum for large AI clusters .
  • Jericho 4 shipping: Fabric router for “scale across” AI clusters across data centers (100km+), deep buffering and MACsec; extends Ethernet leadership .
  • VMware/NVIDIA collaboration: Bringing Blackwell GPUs and advanced networking to VCF to scale AI in private clouds (post-Q3, informs trajectory) .

Notes on Non-GAAP Adjustments

  • Company-reported non-GAAP results exclude amortization of acquisition-related intangibles, stock-based compensation, restructuring, acquisition costs, tax reconciling adjustments, and other items; adjusted EBITDA excludes additional items as detailed in reconciliation tables .

Cross-References and Discrepancies

  • Adjusted EBITDA (company definition) differs from S&P Global “EBITDA Consensus Mean”; investors should compare on a like-for-like basis using company-reported adjusted EBITDA when assessing margins vs guidance [GetEstimates].
  • AI networking share: Management notes networking as ~40% of AI revenue in prior quarters but expects mix to decline vs XPUs into 2026—aligns with margin guide headwinds .

Best AI for Equity Research

Performance on expert-authored financial analysis tasks

Fintool-v490%
Claude Sonnet 4.555.3%
o348.3%
GPT 546.9%
Grok 440.3%
Qwen 3 Max32.7%