Broadcom Inc. Common Stock 2026 Q3 Earnings Call

Thank you, Cherie, and good afternoon, everyone. Joining me on today's call are Hock Tan, President and CEO, Amie Thuener, Chief Financial Officer, and Charlie Kawwas, President, Semiconductor Solutions Group. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the third quarter fiscal year 2026. If you did not receive a copy, you may obtain the information from the investor section of Broadcom's website at broadcom.com. This conference call is being webcast live and an audio replay of the call can be accessed for one year through the investor section of Broadcom's website. During the prepared comments, Hock and Amy will be providing details of our third quarter fiscal year 2026 results, guidance for our fourth quarter of fiscal year 2026, as well as commentary regarding the business environment. We'll take questions after the end of our prepared comments.

Please refer to our press release today and our recent filings with the SEC for information on risk factors that could cause our actual results to differ materially from the forward-looking statements made on this call. In addition to U.S. GAAP reporting, Broadcom reports certain financial measures on a non-GAAP basis. A reconciliation between GAAP and non-GAAP measures, to the extent possible, is included in the tables attached to today's press release. Comments made during today's call will primarily refer to our non-GAAP financial results. I will now turn the call over to Hock.

Well, thank you, Jee, and thank you everyone here for joining us today. We delivered an exceptional quarter with revenue, operating income and free cash flow all exceeding prior records. Driving this was our Q3 AI semiconductor revenue, which grew 221% year-on-year and up 54% sequentially. This brought our consolidated revenue to $29.6 billion, which was up 86% year-on-year. Operating income grew even faster at 92% year-on-year, with operating margin at a record 68% of revenue, reflecting strong operating leverage. Q3 demand was simply hot and we're just getting started. Our six XPU customers are accelerating the adoption of custom accelerators and AI semiconductor revenue more than tripled year-over-year to $16.7 billion. During the quarter, we delivered Ironwood TPU v7, version 7 in high volume to both Anthropic and Google.

At the same time, we began production shipments of the next generation TPU v8i for Google. This new TPU generation has been designed with more memory and bandwidth compared to Ironwood and just like Ironwood, is optimized for inference workloads. In performance it is comparable, if not surpasses the Vera Rubin GPU. Just to reiterate the major technology challenges of developing these complex accelerators, Broadcom is now shipping the TPU v8i ahead of the MediaTek version v8t, which in fact was initiated earlier. In Q3, we also ship Jalapeño, OpenAI's first generation custom accelerator, which outperforms Grace Blackwell GPU for inference workloads. Overall, our XPU shipments for the third quarter were up over 3.5 times year-on-year and represented 73% of AI revenue during the quarter. Our AI networking revenue was up over 2.5 times year-on-year.

This strong momentum continues into Q4. During the quarter, we expect to accelerate shipments of Ironwood to Anthropic. We also expect to ramp up high volume shipments of the TPU v8i to Google. Shipments of Jalapeño for OpenAI will continue, and for Meta, we expect production shipments of their custom MTIA accelerator optimized for inference and recommendation at scale. In Q4, we expect both XPUs and AI networking revenue to triple year-on-year. Together, we expect these deployments to drive our Q4 AI revenue to $21.7 billion, which is up 236% year-on-year. Based on this Q4 guidance, I should say, we expect our fiscal 2026 AI revenue to be $58 billion for the year, up 186% year upon year, and above our prior guidance of $56 million. We are continuing to see exponential growth in demand from our XPU customers.

We believe the vast majority of compute demand for AI workloads today originates from this concentrated group who develops state-of-the-art frontier models. We expect their need for compute infrastructure to inflate even more in 2027 and 2028. They are all growing with XPUs to achieve superior performance, cost, and power. Let me now walk you through each of our customer's journey towards using XPUs at scale to run their frontier models worldwide. Our workloads, sorry. Our engagement with Google has never been stronger. This has been recently strengthened by a long-term agreement to develop and supply future generations of TPUs and AI networking. Under this agreement, we're planning to deliver multi-tens of billions of dollars of TPUs annually over the next several years.

We expect this growing demand in 2028 and 2029 to be fulfilled through successive generations of the increasingly complex TPUs we are developing today with Google. Our partnership with Google will continue to sustain because we have the strongest IP portfolio in semiconductor design, including industry-leading SerDes, chip-to-chip interconnect, leading-edge HBM and SRAM integration, and simply differentiated advanced packaging. Most of all, we have consistently, I should say, delivered the fastest time to market for TPUs from product definition to production without the need for resmits. We believe these are very deep moats for any competitor to cross. Moving on to Anthropic. Starting with the 1 gigawatt of Ironwood we are deploying in 2026, we expect Anthropic to deploy another 5 gigawatts of TPU v8i in 2027.

In 2028, we have clear line of sight to deliver an incremental 10 gigawatts, even as we expect Google to grow for us. Anthropic is on track to become our largest XPU customer in 2027 and sustain that in 2028. For OpenAI, Jalapeño is on track for the planned deployment of 1.3 gigawatts in 2027. Together with OpenAI, we are deep in development of the next generation XPU beyond Jalapeño, which is approaching take-off. In 2028, we have line of sight for OpenAI to deploy over 5 gigawatts of Jalapeño and its successor generation of XPU, which would make OpenAI our second-largest XPU customer. In addition, we are in development with OpenAI on their third generation XPU. As OpenAI announced last week, Jalapeño outperforms the Grace Blackwell Ultra in performance by one latency, throughput, and power, and is actually comparable to Vera Rubin GPUs in running OpenAI workloads.

The lesson here is when you co-develop a chip that is optimized for your particular LLM workloads, you will outperform any GPU. Like GPUs, Jalapeño demonstrates that it can also run other frontier models, and you can do all this at half the cost of a GPU. Our partnership with Meta to deliver multiple generations of MTIA XPUs remains on track. Between now and the end of 2027, we will be delivering three generations of MTIA accelerators to Meta. Across these three generations, we have line of sight to deploying 3 gigawatts through 2028. Our content in AI, as you know, goes beyond XPUs. We are the leader in AI networking, and we continue to extend our lead.

In Ethernet switching for scale up and scale out, we were first to market with our 100 terabit Tomahawk 6, and we just picked up Tomahawk 7, the industry's first 200 terabit per second Ethernet switch. For scaling in, we continue to be the leader in every generation of PCI Express switching. We are now the leader in leading-edge optical DSPs and are rapidly expanding our capacity and market position as a leader in EMLs, VCSELs, and CW lasers for optical interconnects. In sum, we continue to invest, and invest heavily, to provide the broadest and most leading-edge AI portfolio. In fact, our AI networking revenue is expected to grow just as fast as XPUs over the next few years. Reflecting our excellent progress with this key group of LLM customers, here is our outlook for our AI semiconductor revenue.

In 2027, we have secured the supply to again double AI revenue to approximately $115 billion. Our demand actually exceeds this outlook, and we will work to improve supply. In 2028, we expect the trajectory of growth to continue. We have line of sight for fiscal 2028 AI semiconductor revenue growth to again double to $230 billion. Here again, we have secured the supply to meet this outlook. This AI revenue guidance through 2028 is being provided to give you the trajectory of our growth. That demand continues to be extremely strong. As a result, I have to say, we are very much on target to exceed $30 in earnings per share in fiscal 2028. Turning to non-AI semiconductors, Q3 revenue of $4.2 billion was up 5% year-on-year and flat sequentially. Broadband and server storage together were up, partially offset by a decline in wireless.

In Q4, we forecast non-AI semiconductor revenue to be approximately $4.3 billion, again up 5% sequentially. Talking about infrastructure software, Q3 revenue of $8.8 billion was up 29% year-on-year and we sustained ARR growth of 15% year-on-year. For Q4, we forecast infrastructure software revenue to stabilize at approximately $8.7 billion. We announced VMware Private AI Cloud, giving enterprises a secure, cost-effective platform to build and run AI alongside their existing applications. It brings together AI infrastructure, security, and compliance, and the tools to build and operate trusted AI agents, all while protecting enterprise data. VCF, VMware Cloud that is also making it easier for customers to repatriate workloads from public cloud to private cloud, where they can gain greater control and significantly improve infrastructure economics. Enterprise consumption of AI is in fact opening a new opportunity for our infrastructure software business.

To sum it all, for Q4 2026, we expect consolidated revenue to grow to $34.8 billion, up 93% year-on-year. We expect Q4 AI revenue to be $21.7 billion, up 236% year-on-year, and we expect operating margin to be approximately 66% of revenue. With that, let me turn it over to Pan.