On Thursday evening, Broadcom shared positive quarterly results and a hopeful outlook. Things really picked up when CEO Hock Tan mentioned securing $10 billion in custom AI orders from new clients. According to estimates from LSEG, revenue for the third quarter, which concluded on August 3, saw a 22% increase from last year, reaching $15.95 billion, exceeding the consensus forecast of $15.83 billion. Earnings per share climbed 36% compared to the prior year to $1.65, beating expectations of $1.64 as per LSEG data. Adjusted EBITDA, which represents revenue prior to certain expenses, jumped 30% year-on-year, hitting a record of $10.7 billion—above the forecast of $10.46 billion.
Broadcom’s yearly results and its future outlook looked impressive, but what stood out most was what Tan shared during the earnings call. Around 5:10 PM ET, the stock surged after Tan disclosed the addition of its fourth major customer, although he refrained from naming them. The share price rallied again at about 5:30 PM ET when it was revealed that Tan would remain CEO through at least 2026.
In essence, Broadcom’s remarkable quarter, promising guidance, and Tan’s insights illustrate a robust demand for AI semiconductors and networking solutions found within the company’s AI segment. The acquisition of VMware, a software titan bought for $69 billion almost two years ago, continues to enhance its infrastructure software division. Additionally, the margins were impressive, as Broadcom’s fiscal Q3 total margin was up 99 basis points compared to last year. The adjusted EBITDA margin also expanded by 418 basis points, while operating profit margins saw a significant increase of 474 basis points. Notably, AI-related revenues surged 63% year-on-year to $5.2 billion, and Tan projected this to climb to $6.22 billion in the current quarter.
He indicated that demand for custom silicon is growing from three key clients: Alphabet, Meta Platforms, and TikTok. Broadcom has identified four potential customers during previous discussions about custom silicon projects. Tan even mentioned that production orders might soon lead to significant shipments starting in 2026 because the company has “secured more than $10 billion in orders.” The Financial Times noted that Broadcom is collaborating with OpenAI, which might be the unnamed fourth customer he mentioned.
During the Q&A session, Tan emphasized the transformative impact of adding a fourth customer with high demand on the company’s vision for 2026. He remarked on the current strong bookings and mentioned a record backlog of over $110 billion.
On a personal note, Broadcom stands out as a high-quality semiconductor and software enterprise under the leadership of Tan. The firm is poised to benefit significantly from the ongoing growth in the AI domain. Competing entities include Marvell Technology, Advanced Micro Devices, and Nvidia. We were pleased to see updates about expanding their customer base and Tan’s extended tenure as CEO. Given the high expectations for his successor, it’s reassuring to know Tan will be around for the foreseeable future.
Broadcom seems to be winning in the realm of custom semiconductors and networking solutions, even amid challenges like the Deepseek Fiasco in January or tariff worries earlier this year. Interestingly, the S&P 500 also closed near record highs on Thursday. Broadcom’s third-quarter semiconductor revenue grew by 26% year-on-year, totaling $9.17 billion. This represents another acceleration from previous growth rates of 17% and 11% in prior quarters.
While the overall total segment margin experienced a slight dip of 30 basis points compared to last year, it still maintained a solid 67%. In terms of AI semiconductor revenues reaching $5.2 billion, the growth rate of 63% year-on-year signifies a notable acceleration compared to the 46% growth from the previous quarter. Tan reiterated the company’s commitment to growth, asserting that custom AI accelerator demand among their three major clients is intensifying. Broadcom’s AI venture encompasses two areas: custom AI accelerators and networking chips, which facilitate communication within data centers.
Looking at the legacy semiconductor business, the recovery remains somewhat slow, with revenues expected to be flat this quarter, although broadband is showing strong sequential growth. Tan expressed optimism about potential growth in the upcoming quarter, especially with Apple launching new iPhones, which may boost wireless sales related to Broadcom’s unnamed wireless client.
Another positive note is that Broadcom’s other segment for infrastructure software increased around 17% year-on-year to approximately $6.799 billion, with profits improving to 93%. The VMware acquisition appears to be beneficial, as investments and cross-selling allow the company to stay competitive as new offerings emerge.
Tan announced that they’ve recently released version 9.0 of VMware Cloud Foundation, which is aimed at the public cloud. Looking ahead, guidance for the fourth fiscal quarter, ending November 2, indicates total revenue of about $17.4 billion, reflecting a 21% increase year-on-year, surpassing the estimated $17.01 billion.
In his comments, Tan highlighted the strong need for AI infrastructure and VMware solutions as the driving forces behind this growth. He anticipates continued growth in AI revenue in the coming quarter with an expected increase in semiconductor revenue to about $6.2 billion, representing a 66% year-on-year improvement.
The legacy semiconductor business is projected to contribute around $10.7 billion, while the infrastructure software segment could reach about $6.866 billion. The outlook for VMware seems robust, according to analysts. Tan also mentioned an expectation for adjusted EBITDA in the fourth quarter to potentially reach $11.658 billion—a positive indicator given the pent-up demand.
