Broadcom AI Semiconductor Revenue Surges as Shares Fall

Broadcom’s fiscal third quarter broke records on revenue, profit and cash flow, yet shares fell as investors judged the guidance ahead rather than the results just delivered.

Key Takeaways

• Revenue climbed 86 percent to $29.6 billion in Broadcom’s fiscal third quarter, powered by AI semiconductor sales that more than tripled to $16.7 billion.
• Shares fell as much as 6 percent after hours once fourth-quarter guidance of $34.8 billion came in below the roughly $35 billion analysts had expected.
• Management now expects AI semiconductor revenue to reach $115 billion in fiscal 2027 and $230 billion in fiscal 2028, doubling in each of the next two years.

A Record Quarter, A Falling Stock

There is a particular kind of discomfort that comes from beating every number and still losing the room, and Broadcom experienced it in full on September 2. Revenue for the fiscal third quarter reached $29.6 billion, up 86 percent from a year earlier and slightly ahead of the company’s own guidance. Non-GAAP earnings per share came in at $3.32, above a consensus clustered near $3.24. GAAP net income more than tripled to $13.1 billion, and free cash flow set a record at $13.7 billion, a conversion rate of 46 percent of revenue that few hardware companies of any scale have ever approached. By any conventional reading, this was a quarter without a weak line.

Yet the stock fell as much as 6 percent in after-hours trading, and the decline held into the following session. The trigger was not what Broadcom had done but what it said it would do next: fourth-quarter revenue guidance of approximately $34.8 billion, implying 93 percent growth, landed a few percentage points below the roughly $35 billion some analysts had already built into their models. The gap was narrow in dollar terms and wide in symbolic ones. It confirmed something investors have suspected through several consecutive Broadcom prints, which is that the stock no longer trades on the quarter just closed. It trades on whether the next one clears a bar that keeps rising faster than the business itself.

The Silicon Behind the Surge

Strip away the noise and the story underneath remains extraordinary. Semiconductor Solutions generated $20.8 billion, up 127 percent year over year and now 70 percent of the company. Inside that segment, AI semiconductor revenue reached $16.7 billion, up 221 percent annually and 54 percent from the prior quarter alone, climbing to 56 percent of total revenue from 49 percent just three months earlier. Custom accelerator shipments, the XPUs at the center of Broadcom’s AI ambitions, rose more than three and a half times year over year and made up 73 percent of AI revenue. Broadcom shipped its Ironwood processor in volume to both Google and Anthropic, began production of the newer TPU v8i for Google, and delivered Jalapeño, the first inference chip it built alongside OpenAI.

What distinguishes this cycle from Broadcom’s earlier growth spurts is the breadth of who is now paying for silicon built to their own specifications. Management described six customers engaged on custom AI chips, naming four in detail. Google, the longest-tenured relationship, signed a new multi-year agreement that Chief Executive Hock Tan said would bring “multi tens of billions of dollars” of TPU deliveries annually. Anthropic is scaling from one gigawatt of deployment this year to five gigawatts in 2027 and a further ten in 2028, a path that would make it Broadcom’s largest customer in both years. OpenAI’s Jalapeño line is set to reach 1.3 gigawatts in 2027 and, with its successor, more than five in 2028. Meta will take delivery of three generations of its MTIA accelerator through 2027, totaling three gigawatts by the following year.

Networking, Margins and the Software Counterweight

Chips alone do not capture the full picture. Broadcom’s AI networking revenue grew more than two and a half times year over year, carried by the Tomahawk 6 switch, a 100 terabit-per-second Ethernet product that Charlie Kawwas, who runs the semiconductor solutions business, described as the fastest ramp of any switch family the company has ever shipped. A successor, Tomahawk 7, has already taped out at 200 terabits per second, and a third product, Tomahawk Ultra, is opening an entirely new category by bringing low-latency Ethernet into rack-scale connections once reserved for proprietary interconnects. That expanding footprint comes at a cost visible in the margin line. Non-GAAP gross margin slipped 210 basis points sequentially to 75 percent as memory-heavy accelerators took a larger share of the mix, even as disciplined spending pushed non-GAAP operating margin to a record 67.9 percent, up 240 basis points from a year earlier.

Infrastructure Software, built around the VMware acquisition, offered a steadier counterpoint, growing 29 percent to $8.8 billion with annual recurring revenue up 15 percent and operating margin near 84 percent. Broadcom used the quarter to widen its enterprise AI offerings within that portfolio, aimed squarely at customers pulling workloads back from public cloud into infrastructure they control themselves. The balance sheet told a similarly disciplined story. Cash rose to $24.0 billion from $19.6 billion the prior quarter, the company retired $5.6 billion of long-term debt during the period and another $1.5 billion just after quarter-end, and it returned $3.1 billion to shareholders through its dividend, with the next payment due September 30.

The Market’s Verdict

Context explains the market’s impatience better than the numbers alone. Broadcom shares had already lagged the broader market through 2026, up roughly 6 percent against a 12 percent gain for the S&P 500 heading into the print, and had pulled back close to a quarter from a 52-week high near $494 amid a wider retreat from expensive AI names. A guidance figure that undershot expectations by a modest margin was enough, in that environment, to tip sentiment negative despite a quarter that beat on nearly every measure that matters. This looks far more like a valuation dispute than a business one. Broadcom still trades well beneath the average Wall Street price target of roughly $526 held across some four dozen analysts, most of whom rate the stock a Buy or Strong Buy.

The quarter also arrived as Broadcom’s customer base widened well beyond the familiar cluster of AI hyperscalers. In July, Apple committed more than $30 billion to a multi-year agreement covering custom silicon and wireless connectivity components, its largest single commitment yet under its American manufacturing program, and one that includes a $1.5 billion expansion of Broadcom’s Fort Collins, Colorado facility. Paired with the OpenAI silicon partnership unveiled earlier in the summer, the Apple deal signals something larger than a single contract win. The world’s most capital-rich technology companies are increasingly choosing to underwrite custom chip development directly with Broadcom rather than depend entirely on merchant silicon from a single supplier.

The Multi-Year Wager

The most consequential numbers from the quarter may be the ones furthest from it. Broadcom raised its fiscal 2026 AI semiconductor revenue outlook to $58 billion from $56 billion and, for the first time, laid out guidance stretching two years further: approximately $115 billion in fiscal 2027, doubling again to $230 billion in fiscal 2028. Tan told analysts the company remained on track to exceed $30 in earnings per share by that final year. To help fund the buildout for its two most capital-hungry customers, Broadcom established a financing vehicle called XPV with Apollo and Blackstone in June, closing an initial $35 billion tranche to support Anthropic’s first gigawatt of deployment, part of a structure meant to enable more than 20 gigawatts of compute for Anthropic and OpenAI through 2028 without pulling the financing onto Broadcom’s own balance sheet.

The risks sit precisely where the growth does. Six customers now account for the overwhelming share of Broadcom’s incremental revenue, and management acknowledged on the call that land, power and data-center construction, not chip supply, increasingly set the pace at which that demand becomes shipped revenue. Gross margin will keep compressing, guided toward 73 percent in the fourth quarter from 78 percent a year ago, as richer, memory-dense accelerators dominate the product mix. None of that diminishes what Broadcom just reported. It does explain why the stock fell on a quarter that, on paper, gave investors almost nothing to complain about, and why the company’s fortunes now rest less on the results already banked than on its ability to keep delivering, quarter after quarter, on promises made years in advance.