Broadcom Inc. (AVGO) — Earnings Preview: Q3 FY2026
Key Factors to Watch for Next Earnings (Q3 FY2026)
| Factor | Details / What to Watch |
|---|---|
| Revenue Growth | Consensus: $29,435M (+84% YoY); Guidance: ~$29,400M; focus on sustainability of AI-driven acceleration |
| AI Semiconductor Revenue | Guidance: $16,000M+ (over +200% YoY); track magnitude and customer concentration |
| Adjusted EBITDA Margin | Guidance: ~68% of revenue; consensus: $19,971M EBITDA; margin stability as AI mix rises |
| Non-GAAP Operating Margin | Guidance: ~67% of revenue; monitor for any compression from product mix |
| Gross Margin | Guidance: ~74% (down from prior quarters); impact of higher AI/semiconductor mix |
| Infrastructure Software Rev | Guidance: $8,900M (+31% YoY); VMware/VCF adoption, ARR growth, and renewal trends |
| Non-AI Semiconductor Revenue | Guidance: $4,500M (+12% YoY); cyclical recovery, broadband/server storage/enterprise networking trends |
| AI Networking Mix | Q2: ~40% of AI revenue; expected to normalize toward 30%—watch for mix shift and margin implications |
| Bookings/Backlog | Q2: $30B AI bookings vs $10.8B shipped; visibility into 2027–2028, backlog conversion |
| Customer Concentration | Progression of Google, Anthropic, OpenAI, Meta, and two others; new customer ramps |
| Supply Chain/Secured Capacity | Management claims secured supply through 2028; watch for commentary on wafer/HBM/substrate constraints |
| Share Repurchases/Dividends | Ongoing $10B buyback program; quarterly dividend $0.65/share |
Summary and Conclusions
- Broadcom is entering Q3 FY2026 with record momentum, driven by explosive AI semiconductor demand. The company has guided to $29.4B in revenue (+84% YoY), with AI semiconductor revenue expected to exceed $16B (over +200% YoY).
- Margins are under pressure from mix shift but remain robust. Gross margin is guided down to ~74% (from 77% in Q2), but operating and EBITDA margins are expected to hold at 67% and 68%, respectively, due to strong operating leverage.
- AI bookings and backlog are at unprecedented levels. Q2 saw $30B in AI bookings, and management now has visibility into 2028, with expectations for AI semiconductor revenue to exceed $100B in 2027.
- Non-AI semiconductor and infrastructure software segments are recovering/growing. Non-AI semi revenue is forecast to grow +12% YoY in Q3, while infrastructure software is expected to accelerate to +31% YoY, driven by VMware Cloud Foundation adoption.
- Key risks and questions: Sustainability of AI demand, margin trajectory as system/rack sales scale, customer concentration, and ability to secure incremental supply if demand further accelerates.
Forward-Looking Consensus and Guidance
Q3 FY2026 Guidance and Consensus
| Metric | Company Guidance | Consensus Estimate | YoY Growth | Notes |
|---|---|---|---|---|
| Revenue ($M) | ~$29,400 | $29,435 | +84% | Both guidance and consensus aligned |
| Adjusted EBITDA ($M) | ~68% of revenue | $19,971 | +53%* | *Consensus vs. prior year Q3 |
| Non-GAAP Operating Margin (%) | ~67% | Stable QoQ | ||
| Gross Margin (%) | ~74% | 74.1%* | Down from 77.1% in Q2 | |
| AI Semiconductor Revenue ($M) | $16,000+ | +200%+ | Management: "over 200% YoY" | |
| Non-AI Semi Revenue ($M) | $4,500 | +12% | Recovery trend | |
| Infrastructure Software ($M) | $8,900 | +31% | VMware/VCF driving growth | |
| Non-GAAP Diluted Share Count | ~4.94B | Excludes repurchases | ||
| Dividend per Share | $0.65 | +10% YoY | Maintained |
Q2 FY2026 Actuals (Most Recent Reported)
| Metric | Actual Q2 FY2026 | YoY Growth | Notes |
|---|---|---|---|
| Revenue ($M) | $22,187 | +48% | Record high |
| Adjusted EBITDA ($M) | $15,244 | +52% | 69% of revenue |
| Non-GAAP Operating Margin (%) | 67% | +200 bps | Strong leverage |
| Gross Margin (%) | 77.1% | -230 bps | Mix shift to AI semis |
| AI Semiconductor Revenue ($M) | $10,800 | +143% | 49% of total revenue |
| Non-AI Semi Revenue ($M) | $4,200 | +6% | Bookings >$6B |
| Infrastructure Software ($M) | $7,178 | +9% | ARR +17% YoY |
| Free Cash Flow ($M) | $10,262 | +60% | 46% of revenue |
| Dividend per Share | $0.65 | +10% YoY | Paid $3.1B in Q2 |
Q3 FY2025 Actuals (One Year Ago)
| Metric | Actual Q3 FY2025 | YoY Growth | Notes |
|---|---|---|---|
| Revenue ($M) | $15,952 | +22% | |
| Adjusted EBITDA ($M) | $10,702 | +30% | 67% of revenue |
| Non-GAAP Operating Margin (%) | 65.5% | +20 bps QoQ | |
| Gross Margin (%) | 78.4% | ||
| AI Semiconductor Revenue ($M) | $5,200 | +63% | |
| Non-AI Semi Revenue ($M) | $4,000 | Flat Seq. | |
| Infrastructure Software ($M) | $6,786 | +17% | |
| Free Cash Flow ($M) | $7,024 | +47% | 44% of revenue |
| Dividend per Share | $0.59 |
Year-on-Year Comparison and Setup
- Q3 FY2026 faces a much easier comparable than prior years. Last year’s Q3 revenue was $15,952M (+22% YoY at the time), while this quarter is guided to $29,400M (+84% YoY). The acceleration is driven almost entirely by AI semiconductor demand.
- AI revenue is expected to more than triple YoY in Q3. Q3 FY2025 AI semi revenue was $5.2B; Q3 FY2026 is guided to $16B+.
- Gross margin is expected to compress YoY. Q3 FY2025 gross margin was 78.4%; Q3 FY2026 is guided to ~74%, reflecting higher AI semi mix.
- Operating leverage remains strong. Despite gross margin compression, operating and EBITDA margins are expected to remain stable due to scale and cost discipline.
Management Commentary and Intra-Quarter Color
- AI Demand and Backlog: Management repeatedly emphasized “insatiable” demand for AI compute, with Q2 AI bookings over $30B and backlog visibility now extending into 2028. “We expect AI semiconductor revenue to double from the first half we shipped this year.”
- Customer Ramps: Google, Anthropic, OpenAI, Meta, and two additional customers are all ramping multi-gigawatt deployments. New long-term agreements (e.g., Google, Anthropic) provide multi-year revenue visibility.
- AI Networking: Networking is nearly 40% of AI revenue in Q2, but management expects this to normalize toward 30% as custom XPUs ramp.
- Supply Chain: Management claims to have secured wafer, HBM, substrate, and packaging supply through 2028, supporting continued growth.
- Non-AI Semi Recovery: Bookings in non-AI semi exceeded $6B in Q2, with management indicating a “full cyclical recovery” is underway.
- Software/VMware: VMware Cloud Foundation 9.1 is driving strong on-prem cloud demand; ARR growth remains robust at +17% YoY.
What to Watch in the Print
- Sustainability of AI Revenue Acceleration: Is the >200% YoY AI semi growth in Q3 sustainable into Q4 and FY2027? Any signs of order pushouts or cancellations?
- Margin Trajectory: Will gross margin stabilize at ~74% or continue to compress as AI/system sales scale? Can operating leverage offset mix headwinds?
- Backlog Conversion and Bookings: Does the $30B+ in quarterly AI bookings convert to revenue as expected? Any changes in backlog visibility or customer commitments?
- Customer Concentration and Ramp Timing: Are all six core customers ramping as planned? Any delays or changes in gigawatt deployment schedules?
- Non-AI Semi and Software Trends: Is the cyclical recovery in non-AI semi broadening? Does infrastructure software sustain double-digit growth as guided?
- Capital Returns: Any changes to buyback pace or dividend policy given cash flow strength?
Conclusion
Broadcom enters Q3 FY2026 with historic momentum, driven by AI semiconductor demand and robust execution across its portfolio. The company faces an easy YoY comparable, but the market will be focused on the durability of AI growth, margin trajectory, backlog conversion, and the breadth of customer ramps. Management’s ability to deliver on these fronts will be critical for sustaining the current valuation and investor confidence.
