TradingKey - Broadcom Inc. (NASDAQ: AVGO) delivered a strong fiscal Q3 2025, with results driven by AI networking strength and continued VMware integration. Revenue and EPS both topped expectations, reinforcing the company’s role as an essential player in the AI infrastructure buildout. Management also raised full-year guidance, citing robust AI chip demand and accelerating adoption of VMware’s software stack. Shares gained over 4% in after-hours trading.

Source: TradingKey

Key Financial Results

Source: Broadcom, TradingKey

Segment and Strategic Performance

AI and Semiconductor Strength: Broadcom’s semiconductor business grew 26% year-over-year to $9.2 billion, driven by a 63% surge in AI chip sales to $5.2 billion, now more than half of the segment. Most of this came from custom AI accelerators built for three hyperscaler customers, with a fourth recently added that has already booked over $10 billion in orders. Networking products like the Tomahawk 6 switch and Jericho 4 router also reinforced Broadcom’s lead in powering AI data centers. Outside of AI, semiconductor revenue was flat at $4 billion, as broadband improved but enterprise networking and storage lagged.

Infrastructure Software and VMware: Infrastructure software revenue rose 17%, topping guidance near $6.7 billion as VMware subscriptions and cross-selling drove the quarter. Bookings were a record $8.4 billion for the segment, reinforcing demand visibility for VMware’s stack. VMware Cloud Foundation 9.0, positioned for AI and hybrid cloud, has been purchased by well over 90% of VMware’s top 10,000 customers; Broadcom’s priority now is helping these customers deploy and run private clouds at scale rather than just selling licenses. Partnerships around Private AI, including Nvidia, Oracle, and Dell, continue to support adoption highlighted around VMware Explore 2025. Profitability remained exceptional, with infrastructure software gross margin at 93% in Q3, reflecting strong operating leverage after the VMware integration.

Financial and Operational Highlights: Non-GAAP gross margin was 78.4% and adjusted EBITDA was $10.7B (67% of revenue), reflecting mix benefits and higher software weight. Free cash flow was $7.024B (44% of revenue), up 47% YoY; dividends paid totaled $2.8B at $0.59 per share; quarter-end cash was $10.7B and gross debt $66.3B; the weighted‑average fixed coupon was ~3.9%. Backlog stood at roughly $110B, with at least half from semiconductors, reinforcing multi‑year AI and software demand visibility.

Guidance and Management Commentary

Q4 FY2025: Revenue guided to $17.4B (+24% YoY), including AI semis at $6.2B (+66% YoY) and infrastructure software at $6.7B (+15% YoY). Adjusted EBITDA margin guided to 67%; implied non-GAAP EPS around $1.78 based on a 14% tax rate.

FY2026: AI growth expected to accelerate beyond 2025’s 50–60% range on XPU ramp and a new hyperscaler; non�AI semis seen recovering by mid�2026.

Management Comments: CEO Hock Tan emphasized AI and VMware as twin growth engines, calling for $6.2B AI semiconductor revenue in Q4 (eleven straight quarters of growth), while the CFO highlighted record $7.0B free cash flow, up 47% YoY, supporting continued capital returns.

Conclusion and Outlook

Broadcom’s Q3 FY2025 reinforces leadership in AI semiconductors and enterprise software, pairing record revenue with resilient margins and strong cash generation that fund reinvestment and capital returns. AI demand from custom XPUs and high‑bandwidth Ethernet, plus VMware subscription growth, supports continued momentum into Q4 and FY2026 under raised guidance and multi‑year visibility. Key swing factors into FY2026 are the timing of non‑AI semi recovery, export controls, and foundry concentration, balanced by scale, hyperscaler depth, and high software margins that stabilize cash flow. With a forward P/E near 40x and a $110B backlog, durable execution in AI and software synergy points to a positive long‑term trajectory; delivery on next‑gen AI networking and private‑cloud deployments is the catalyst path for sustaining premium valuation.

Broadcom Q3 2025 Earnings Preview: Testing the Strength of AI Momentum and Software Synergy

TradingKey - Broadcom Inc. (NASDAQ: AVGO) will report its third quarter fiscal 2025 earnings after the U.S. market closes on Thursday, September 4, 2025, with a conference call at 5:00 p.m. Eastern Time. As a leading supplier of AI data center networking hardware and enterprise software, and with VMware now fully integrated, Broadcom’s results are widely seen as a barometer for the AI buildout, cloud infrastructure demand, and the overall health of the tech sector. The company’s scale and direct ties to hyperscalers position this quarter’s earnings as a key indicator for both semiconductor growth and institutional investor sentiment.

Source: TradingKey

Market Forecast 

Source: Broadcom, MarketWatch, SeekingAlpha, TradingKey

Key Investor Focus Areas 

AI Networking & Custom Accelerators: Broadcom’s semiconductor division continues to anchor overall growth in Q3, with Ethernet switch platforms like Tomahawk and Jericho, alongside custom silicon for hyperscalers, expected to remain key drivers. AI chip revenue is forecast at $5.1 billion for the quarter, with order flow from cloud providers and momentum in next-generation product launches closely watched. Shifts in cloud customer inventories or changes in chip sourcing strategies could influence the outlook for the remainder of the year.

VMware & Infrastructure Software Momentum: Infrastructure software, primarily from VMware, is projected to account for over 40% of total revenue this quarter. The focus is on cost-reduction milestones, progress in moving clients to subscription models, the impact of new Private AI offerings, and customer retention rates. Cross-selling between VMware’s software stack and Broadcom hardware is likely to play a pivotal role in driving incremental value as enterprises adopt hybrid and multicloud AI solutions. 

Supply Chain & Geopolitical Trends: For Q3, the impact of ongoing U.S. export restrictions to China, making up 10–15% of total company sales, and continued reliance on TSMC, will remain important factors. Developments around sourcing diversification, manufacturing partnerships beyond TSMC, inventory controls, and wafer pricing will shape how Broadcom manages both revenue stability and margin performance in the near term. 

Margins & Operational Performance: Non-GAAP gross margin for Q3 is forecast at 77%, with adjusted EBITDA margin near 66%, reflecting resilience amid AI product growth and optimized cost structure from VMware. Monitoring product mix shifts, input cost trends, and the pricing environment in broadband and wireless segments will provide insight into the durability of margin leadership as new technologies scale up. 

Capital Returns & Free Cash Flow: Q3 performance is projected to reflect continued robust free cash flow, supporting ongoing share repurchases and dividends. Cash generation dynamics remain strong enough to underpin R&D expansion, new product investments, and capital return programs, solidifying Broadcom’s financial flexibility through the remainder of 2025.

Recent Events and Regulatory Trends 

VMware & AI Product Launches: Broadcom rolled out VMware Cloud Foundation 9.0 at VMware Explore 2025, introducing Private AI Services, enhanced enterprise security, and deep Nvidia integration for on-premises AI, expanding partnerships with Oracle and Dell and cementing its role in secure hybrid AI deployments.

AI Networking and Chip Progress: The launch of new Jericho networking chips reinforces Broadcom’s lead in high-speed AI data center connectivity, alongside ongoing strategic investment in next-gen chip platforms for hyperscalers.

Trade Policy and China Exposure: U.S. export restrictions and tariff uncertainties still shape Broadcom’s near-term opportunity in China, moderating direct AI and networking chip sales, though the company’s focus on U.S. and allied cloud providers limits broader impacts.

Conclusion

Broadcom’s Q3 FY2025 results are set to gauge the momentum behind the AI buildout and reveal whether strong demand for networking and custom chips remains resilient in a shifting global landscape. With VMware’s software integration expected to provide stability and upside on margins, Q3 will clarify if Broadcom can convert rapid innovation into sustained earnings growth even as trade and regulatory headwinds persist. Solid execution and robust AI adoption could cement Broadcom’s leadership and set a positive tone for the broader semiconductor sector through year-end, while any signs of slowing demand, cost pressure, or regulatory disruption may reset market expectations for the entire industry.

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