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Can Broadcom Keep Pushing Beyond the Next AI Horizon?
Navigating custom AI accelerators, networking scale, and a strategic software play to drive a different kind of growth story.
By the numbers:
- Revenue: $15.95 billion, up 22% year-over-year
- AI Semiconductor Revenue: $5.2 billion, up 63% year-over-year
- Non-GAAP EPS: $1.69, beating consensus by $0.03
- Adjusted EBITDA: $10.7 billion, or 67% of revenue
Key Highlights
- Broadcom's third-quarter revenue and earnings surpassed analyst expectations, driven by strong AI and networking demand.
- The company announced a new qualified customer and a $10 billion custom AI chip order, fueling optimism for future growth.
- AI semiconductor revenue growth is accelerating and now comprises a significant portion of the business.
- The acquisition of VMware is proving to be a powerful and complementary engine for recurring software revenue and cash flow.
- Broadcom's strategic focus on Ethernet and custom accelerators sets it apart in the increasingly competitive AI hardware market.
The News:
Broadcom announced record-breaking third-quarter fiscal year 2025 financial results, reporting a 22% year-over-year increase in revenue to $15.95 billion and a record free cash flow of over $7 billion. The company's growth was primarily driven by its custom AI accelerators and networking solutions, with AI revenue surging 63% to $5.2 billion. Broadcom also provided a strong outlook for the fourth quarter and revealed a new $10 billion customer order, signaling sustained and accelerating demand for its AI-centric products. You can find more details at the company's official press release.
Analyst Take:
Based on my analysis of Broadcom’s recent earnings, it's clear the company is successfully executing on a well-defined strategy that is distinct from the narrative of its peers. Put another way, Hock Tan continues to be the best execution focused CEO in the business. The headline numbers are strong, but the real story is in the details of how the company is achieving this growth. Broadcom is not simply riding the coattails of the AI boom; it is building a foundational, and arguably indispensable, layer beneath the most visible players in the space.
The single most impactful piece of news from this report, in my opinion, was the confirmation of a fourth "qualified customer" and the subsequent $10 billion order for custom AI chips. This new customer win is a massive vote of confidence and demonstrates Broadcom’s growing importance to the hyperscale data center operators. While the company does not name its customers, market speculation and external analysis point to a significant new player. This shows that the market is beginning to diversify its supply chain away from a single provider and that Broadcom is perfectly positioned to capture that new demand.
The company's approach to AI infrastructure is a critical differentiator. While much of the market has focused on the GPU-centric, full-stack model pioneered by Nvidia, Broadcom is championing a different architecture. CEO Hock Tan’s often-repeated phrase, "the network is the computer," is not just a slogan; it is the core of their strategy. Broadcom is leaning into its expertise in high-speed networking and custom silicon to provide a scalable and efficient alternative. As data center clusters continue to expand to hundreds of thousands of nodes, the network itself becomes the bottleneck. Broadcom's Ethernet-based solutions are architected to address this challenge head-on, offering a more open and flexible approach that appeals to large-scale operators. This is a subtle but powerful move that creates a "pull" for their products as the industry looks for ways to scale past the limitations of proprietary interconnects.
The sustained strength in both the custom AI and networking segments is particularly noteworthy, especially when considering the broader, non-AI semiconductor market, which remains slow to recover. This highlights the ongoing and concentrated capital expenditure from a small number of hyperscale customers. While this is a source of strength, it also concentrates risk. The continued success of Broadcom's AI business is dependent on these few customers continuing their aggressive investment. The good news is that management’s guidance for an acceleration in AI revenue for Q4 and into fiscal 2026 suggests the demand shows no signs of slowing down. The company’s backlog of $110 billion is a testament to that.
The company’s ability to generate significant free cash flow—a record $7 billion this quarter—is the foundation of its financial strength. This level of cash generation provides the flexibility to invest in research and development, pursue strategic acquisitions, and return capital to shareholders through dividends, all of which are critical for long-term value creation.
What Drove the Numbers
Broadcom’s Q3 2025 results reinforce its position at the epicenter of AI and cloud infrastructure, with financials reflecting deep alignment to persistent technology megatrends. The company posted a 22% year-over-year revenue increase to $15.95 billion, driven primarily by ongoing enterprise and hyperscaler demand for custom silicon that underpins machine learning and advanced data center workloads. Adjusted EBITDA came in at $10.7 billion, 67% of revenue, highlighting Broadcom’s operational excellence at a time when many semiconductor and hardware suppliers are contending with eroding margins and cost headwinds.
The 63% year-over-year surge in AI semiconductor revenue to $5.2 billion illustrates clear market validation for Broadcom's custom accelerators and proprietary chip architectures, particularly as AI training and inference workloads become both more complex and central to cloud strategy. On the software front, VMware integration propelled infrastructure software revenue to $6.79 billion, up 17%, which not only diversifies the business but also provides recurring, high-margin revenue streams to buffer cyclicality in legacy chip markets. Free cash flow reached $7.02 billion, with a substantial $10.72 billion on the balance sheet, positioning Broadcom to continue investing aggressively in advanced R&D and return capital to shareholders.
Looking forward, management is guiding to $17.4 billion in Q4 revenue and maintaining robust EBITDA margin expectations, signaling sustained confidence in both end-market demand and internal execution. The core question is whether Broadcom’s AI-driven growth and infrastructure software gains will continue offsetting pressures in traditional segments as competition intensifies and enterprise IT investment patterns evolve in the face of rapid cloud, edge, and AI adoption.
VMware Acquisition Continues To Be Accretive
What was also very impressive was the performance of the Infrastructure Software segment. The integration of VMware is clearly paying off, acting as a robust and predictable cash flow engine. While the semiconductor side of the business can be cyclical, the software segment provides a crucial layer of stability and, more importantly, customer stickiness. The new VMware Cloud Foundation, designed to bring the latest NVIDIA AI technology to the modern private cloud, is a brilliant move that ties their software and hardware offerings together. This creates a powerful platform that allows enterprises to deploy AI workloads seamlessly alongside their existing applications, without sacrificing performance or operational simplicity. This synergy between software and hardware is a strong competitive moat.
The continued adoption of VMware Cloud Foundation (VCF) 9.0 is a critical validation of the VMware acquisition, as highlighted at the recent VMware Explore. By tightly integrating the platform's core components—compute, storage, and networking—Broadcom has created a single, AI-native platform that is seeing strong traction with enterprise customers. The inclusion of new VMware Private AI Services as a standard part of the VCF subscription is a game-changer, designed to empower organizations to deploy, fine-tune, and govern their own AI models securely within their private clouds. This move directly addresses a key pain point for large companies concerned with data privacy and sovereignty. The proof of this strategy's success is in the numbers: according to Broadcom, nine of the top ten Fortune 500 companies have now committed to VCF, and customers worldwide have licensed over 100 million cores of the platform. The acquisition's execution has shifted VMware's business model to a more simplified, subscription-based approach, which is not only proving to be a highly profitable, high-margin engine for Broadcom but is also fundamentally changing how enterprise IT operates.
Mainframe Business Continues To Hum
I recently spent some time with the Broadcom Mainframe team at a mainframe user conference, SHARE, and remain convinced that under the leadership of Senior Vice President Greg Lotko, Broadcom's Mainframe Software Division (MSD) continues to be a remarkably consistent profit engine. This is a testament to the business unit's customer-first philosophy and a strategic focus on modernizing a legacy platform. Rather than simply extracting value from its installed base, the MSD team is actively investing in new product synergies and integrations, such as a unified modern UI framework and open APIs. These efforts are designed to help customers more efficiently manage, automate, and secure the mission-critical mainframe systems that run their businesses. Lotko's team has also made significant investments in areas like the Expert Change Program, which aims to reduce outages and improve customer loyalty. While the mainframe market is mature, its stability and high barriers to entry make it a powerful source of recurring, high-margin revenue that complements Broadcom's more dynamic, AI-driven semiconductor business.
Looking Ahead:
The story of Broadcom is no longer just about its core semiconductor business. It is a dual-engine machine, with the AI and networking side driving incredible growth, while the VMware software business provides a powerful, cash-generating backstop. The key trend that I am going to be tracking is the ongoing adoption of Ethernet for large-scale AI clusters and whether this open architecture can gain a significant market share against proprietary solutions. Based on my analysis of the market, my perspective is that hyperscalers will continue to look for ways to diversify their supply chains and increase architectural flexibility. This plays directly into Broadcom's hand. Going forward, I am going to be looking at how the company performs on delivering on its new $10 billion AI chip order. The successful execution of this contract will solidify its position as a dominant and indispensable player in the AI infrastructure landscape. When you look at the market as a whole, the announcement today confirms that the AI revolution is still in the early innings and that demand for foundational hardware is not only strong but accelerating. HyperFRAME will be closely monitoring how the company does on its non-AI semiconductor business in future quarters to see if a broader market recovery is taking shape.
Steven Dickens | CEO HyperFRAME Research
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the CEO and Principal Analyst at HyperFRAME Research.
Ranked consistently among the Top 10 Analysts by AR Insights and a contributor to Forbes, Steven's expert perspectives are sought after by tier one media outlets such as The Wall Street Journal and CNBC, and he is a regular on TV networks including the Schwab Network and Bloomberg.