Earnings Call Highlights: Broadcom (AVGO) | FY26 Q1

1. Summary | Broadcom's AI Chip Momentum Soars as a "$100B" 2027 Revenue Outlook Stuns the Market

Broadcom's Q1 results came in well above expectations, driven by explosive growth in custom AI XPUs (custom accelerators) and AI networking. Management not only raised near-term guidance but also offered unusually long-range visibility: AI chip revenue alone is expected to exceed $100B in 2027. Broadcom now has six core custom chip customers (including Google, Meta, Anthropic and OpenAI) and has already secured HBM and CoWoS capacity for 2026–2028. With 200G SerDes and Tomahawk 6 entering volume deployment, Broadcom sits at the center of the AI infrastructure boom.

2. Financials (Non-GAAP)

• Total revenue: $19.3B (YoY +29%), above guidance.

• Gross margin: 77% (flat QoQ / flat YoY).

• Operating margin: 66.4% (YoY +50 bps), showing very strong operating leverage.

• Adjusted EBITDA: $13.1B (68% of revenue), a record high.

• EPS: not specifically disclosed, but operating cash flow is extremely strong.

• Opex: $2.0B (of which R&D was $1.5B).

• CapEx: $250M (keeping an asset-light model).

• Segment performance:

  • Semiconductor Solutions: $12.5B (YoY +52%), 65% of revenue.

  • Infrastructure Software: $6.8B (YoY +1%), 35% of revenue.

• Cash and capital returns: ending cash of $14.2B; $10.9B returned to shareholders in the quarter (including $7.8B of buybacks), plus a new $10B buyback authorization.

3. Outlook (FY26 Q2)

• Revenue guidance: about $22.0B (YoY +47%).

  • AI chips: $10.7B expected (YoY +140%).

  • Software: $7.2B expected (YoY +9%).

• Gross margin outlook: holding at 77%.

• EBITDA margin: about 68%.

• Growth drivers: AI XPUs entering the next phase of deployment at the existing five customers, plus networking share gains.

4. Product Segment Updates

Custom AI XPUs (Custom Accelerators)

• Google: strong demand for the seventh-generation iNode TPU, with very high visibility into follow-on generations in 2027.

• Anthropic: deploying 1 GW of compute in 2026, expected to surge to 3 GW in 2027.

• Meta: Broadcom clarified that the MTIA roadmap is on track, shipments continue, and it will scale to multiple GW in 2027.

• OpenAI: officially confirmed as the sixth customer, with first-generation XPU deployment expected to exceed 1 GW in 2027.

• Technical edge: Broadcom stressed its leadership in advanced packaging, SerDes and high-yield volume manufacturing; most customer contracts are long-term agreements (LTAs).

AI Networking

• Share expansion: Q1 revenue YoY +60%; in Q2, networking is expected to rise from one-third to 40% of total AI revenue.

• Key products: Tomahawk 6 (100T) and 200G SerDes are today's mainstream; Tomahawk 7 (double the performance) is slated for 2027.

• Copper advantage: Broadcom argues that in scale-up (in-rack) environments, its 200G/400G SerDes let customers keep using DAC (direct attach copper) instead of costly optics, sharply cutting power and cost.

Infrastructure Software

• VMware: revenue YoY +13%, Q1 bookings (TCV) above $9.2B, ARR up 19%.

• AI synergy: Broadcom stressed that VCF (VMware Cloud Foundation) is the foundation layer of AI private clouds; rather than being replaced by AI, it is the core abstraction layer on which GenAI runs.

5. Longer-Term Outlook

• Massive 2027 guidance: management expects 2027 revenue from AI chips (pure silicon) to significantly exceed $100B.

• Supply chain assurance: capacity for key components for 2026–2028 is fully secured (including TSMC advanced wafers, HBM and substrates).

• Structural shift: even as AI's share of revenue rises, yield gains and cost control will keep gross margin stable at around 77%, dispelling market fears that AI hardware (racks) would drag on margins.

6. Q&A Highlights

• Question: How about competitive pressure from customer-owned tooling (COT)?

  • Management: designing a chip that works in the lab is not hard, but in 200G SerDes, advanced packaging and high-yield volume manufacturing (e.g., 100,000 units in a single run), Broadcom has an unassailable lead. LLM developers face fierce competition and cannot risk using "second-rate chips", so they must choose a strategic partner like Broadcom.

• Question: What is the trade-off between copper (DAC) and optics (CPO)?

  • Management: although Broadcom is a CPO leader, current technology still supports copper at 400G SerDes. Copper is highly competitive on power and cost; the "golden age" of CPO has not yet arrived, and Broadcom is still pushing to maximize DAC use.

• Question: Does the $100B revenue figure include rack systems?

  • Management: the $100B+ is defined almost entirely as silicon content, including XPUs, switches, DSPs and more, minimizing the effect of low-margin system assembly.

7. Risks and Watch Points

1. Customer concentration: AI revenue depends heavily on six core customers; LTAs offer a buffer, but a strategic shift at any customer remains a risk.

2. Weak non-AI business: non-AI semiconductors are only flat to slightly up (Q2 expected YoY +4%).

3. Geopolitics and tax: due to the global minimum tax, the FY26 tax rate is expected to rise to 16.5%.

8. Bottom Line

• One-line positioning: Broadcom has transformed from a communications chip leader into the AI era's sole arms dealer for "custom compute and networking".

• Core moat: world-class SerDes IP, deeply secured advanced packaging capacity with TSMC, and custom XPU architectures refined over years with hyperscalers.

• Investment conclusion: in its strongest growth sweet spot. The $100B long-range guidance shows its penetration in AI infrastructure far exceeds market expectations, while the software business (VMware) provides stable profits, giving excellent downside protection and upside leverage; the valuation has room for continued re-rating as AI's revenue share rises.