Earnings Highlights: Broadcom (AVGO) | FY25 Q4

Summary

Driven by its twin engines of AI and VMware, Broadcom delivered a historic set of results. FY25 full-year revenue was $64B (+24% YoY), including AI semiconductors at $20B (+65% YoY);

Q4 revenue was $18B (+28% YoY), with AI semiconductors at $6.5B (+74% YoY) for the quarter. AI order visibility has stretched out sharply, with an AI backlog of $73B (over the next 18 months),

covering XPUs, Tomahawk 6 switches, DSPs, lasers and PCIe switches. Management made it clear: XPU + AI networking + system sales (full systems/racks)

are pushing Broadcom into a new role as an AI data center system-level supplier.

💰 Financials (non-GAAP)

Q4 FY25

• Revenue: $18.0B (YoY +28%)

• Gross margin: 77.9%

• Operating expenses (Opex): $2.1B (R&D $1.5B)

• Operating income: $11.9B (+35% YoY)

• Operating margin: 66.2%

• Adjusted EBITDA: $12.12B (68% margin)

• Free cash flow: $7.5B (41% of revenue)

• Cash: $16.2B

• Inventory: $2.3B (58 days DOI, improved QoQ)

FY25 full year

• Revenue: $63.9B (YoY +24%)

• Semiconductor revenue: $36.9B (+22% YoY)

• Infrastructure Software: $27.0B (+26% YoY)

• Adjusted EBITDA: $43B (67% margin)

• Free cash flow: $26.9B (+39% YoY)

• Shareholder returns: $17.5B (dividends + buybacks)

Q1 FY26 guidance

• Revenue: $19.1B (YoY +28%)

• Semiconductor revenue: $12.3B (YoY +50%)

• AI semiconductors: $8.2B (YoY +100%)

• Infrastructure Software: $6.8B

• Adjusted EBITDA margin: ~67%

• Tax rate: ~16.5%

• Dividend: quarterly $0.65/share (+10% QoQ)

⚙️ Product updates

1️⃣ AI Accelerators (XPU / Custom Silicon)

• FY25 AI revenue $20B (+65% YoY)

• Q4 AI semiconductors $6.5B (+74% YoY)

• XPU business more than doubled YoY

• The existing four major customers continue to ramp;

  a fifth XPU customer has been added ($1B order, delivering in 2026)

• XPUs are no longer used only for internal training/inference; they are also starting to be offered commercially to outside customers (e.g., TPU)

• Management stressed:

  • Custom XPU is a multi-year journey

  • It can implement Sparse Core / inference / reasoning in hardware

  • The "customers will build their own chips" thesis is seen as overstated

2️⃣ AI Networking (Switch / DSP / Optical / PCIe)

• AI networking demand is "even stronger than XPU"

• AI switch backlog > $10B

• Tomahawk 6 (102.4T)

  • Currently the only 102T switch in volume production

  • Broadcom's fastest-growing switch product ever

• Strong shipments include:

  • DSP (1.6T)

  • Lasers / EML / VCSEL / CW

  • PCIe switches

• Total AI backlog: $73B (next 18 months)

  • About $50B+ to land in FY26

  • Of which roughly $20B is networking/optics, the rest XPUs

3️⃣ System Sale (Rack-level / System-level Delivery)

• Broadcom formally enters the system sale (full system/rack) model

• Selling not just XPUs, but:

  • XPU

  • Networking

  • Optical

  • PCIe

  • Memory (HBM pass-through)

• Management noted:

  • System sales will dilute gross margin

  • but revenue scale × operating leverage still lifts absolute profit

• System sales started showing up in Q4, ramping in the second half of 2026

4️⃣ Infrastructure Software (VMware / VCF)

• Q4 revenue $6.9B (+19% YoY)

• FY25 revenue $27B (+26% YoY)

• VMware Cloud Foundation (VCF) is the main growth driver

• Q4 TCV bookings $10.4B

• Software backlog $73B (+49% YoY)

• FY26 expected low double-digit growth

🔭 Outlook

• AI becomes Broadcom's core growth engine

• AI revenue keeps accelerating (FY26 YoY growth > FY25)

• Non-AI semiconductors:

  • Broadband recovering

  • Wireless flat

  • Enterprise still weak

• Infrastructure Software: VMware steady at low double digits

• Supply chain strategy

  • Continuing to expand TSMC 3nm / 2nm

  • Singapore advanced packaging facility

    • Focused on multi-chip / CoWoS-type packaging

    • Strengthening supply-chain security and delivery capability

💬 Q&A highlights

• $73B AI backlog

  • A "snapshot in time" that will keep growing

  • Lead times of about 6–12 months

• XPU vs GPU

  • Commercial TPU sales to outside customers are a GPU substitute

  • They do not affect hyperscalers' long-term in-house XPU strategy

• Gross Margin

  • AI / system sales lower gross margin

  • but operating income dollars still grow

• OpenAI

  • The 10GW is a 2027–2029 alignment

  • Not a major revenue contributor in 2026

  • The XPU project is a separate, independent track

• Silicon Photonics

  • Necessary in the long run, but not mainstream in the near term

  • Copper / pluggable optics come first to sustain scale-up

⚠️ Risks and watch points

• AI's rapidly rising share of revenue → changing margin structure

• HBM / advanced packaging as potential bottlenecks

• System-level sales add execution complexity

• Non-AI semiconductor recovery still unclear

• Risk of AI CapEx volatility (2027 and beyond)

🧭 Bottom line

Broadcom has formally evolved from a high-end semiconductor supplier into a core system-level player in the AI data center.

Its moat is no longer just chips, but: XPU + AI Networking + Optics + PCIe + System Sale + VMware Software

Against a backdrop of AI training, inference and commercialization all accelerating, Broadcom's backlog, technology breadth and supply-chain control make it one of the most critical "invisible hubs" of the AI infrastructure era.