Broadcom (NASDAQ:AVGO) reported record third-quarter fiscal 2026 revenue, operating income and free cash flow, driven by sharply higher demand for artificial intelligence semiconductors and custom AI accelerators.
Revenue rose 86% year over year to $29.6 billion, while operating income increased 92% to a record $20.1 billion. Non-GAAP diluted earnings per share grew 96% from a year earlier to $3.32. The company generated record free cash flow of $13.7 billion, equal to 46% of revenue.
AI Semiconductors Drive Growth
Broadcom’s Semiconductor Solutions segment produced record revenue of $20.8 billion, up 127% year over year and accounting for 70% of consolidated revenue. AI semiconductor revenue represented 56% of total company revenue, compared with 49% in the preceding quarter.
Tan said the company’s XPU shipments rose more than 3.5 times from a year earlier and represented 73% of AI revenue in the third quarter. AI networking revenue increased more than 2.5 times year over year.
During the quarter, Broadcom delivered high-volume shipments of Ironwood TPU v7 to Anthropic and Google, while beginning production shipments of Google’s next-generation TPU v8i. It also shipped Jalapeño, OpenAI’s first-generation custom accelerator. Tan said Broadcom expects production shipments of Meta’s custom MTIA accelerator in the fourth quarter.
Tan said the company believes custom accelerators can offer superior performance, cost and power characteristics for customers’ specific large-language-model workloads. He also described Jalapeño as outperforming Grace Blackwell GPUs for certain inference workloads, citing OpenAI’s announcement, and said it was comparable to Vera Rubin GPUs in running OpenAI workloads.
Fourth-Quarter and Long-Term Outlook
For the fourth quarter, Broadcom forecast consolidated revenue of approximately $34.8 billion, up 93% year over year. It expects semiconductor revenue of about $26.1 billion, including $21.7 billion in AI semiconductor revenue, which would represent growth of more than 236% from the prior-year period.
Infrastructure software revenue is expected to be approximately $8.7 billion in the fourth quarter, up 25% year over year. Broadcom expects consolidated operating margin of about 66%.
- Fiscal third-quarter AI semiconductor revenue: $16.7 billion
- Fiscal fourth-quarter AI semiconductor revenue forecast: $21.7 billion
- Fiscal 2026 AI revenue forecast: $58 billion, up 186% year over year
- Fiscal 2027 AI revenue outlook: approximately $115 billion
- Fiscal 2028 AI revenue outlook: approximately $230 billion
Tan said the company has secured supply to support its fiscal 2027 AI revenue outlook and has line of sight to supply needed for its fiscal 2028 target. He said demand exceeds the company’s current 2027 outlook, but Broadcom is accounting for the pace at which chips can be deployed at customer data centers.
“This is real demand,” Tan said, pointing to customer data-center readiness as well as the availability of leading-edge wafers, substrates and high-bandwidth memory.
Broadcom said it expects Google to purchase multi-tens of billions of dollars of TPUs annually over the next several years under a long-term agreement for future TPUs and AI networking. Tan said Anthropic is expected to deploy an additional 5 gigawatts of TPU v8i in 2027 and an incremental 10 gigawatts in 2028. OpenAI is expected to deploy 1.3 gigawatts of Jalapeño in 2027, with Broadcom having line of sight to more than 5 gigawatts of Jalapeño and successor products in 2028.
Networking, Supply and Data-Center Constraints
Broadcom also highlighted its AI networking portfolio, including its Tomahawk Ethernet switches, PCI Express switching products and optical interconnect components. Charlie Kawwas, president of the Semiconductor Solutions Group, said Tomahawk 6 has been deployed across nearly all AI hyperscalers working with Broadcom on XPUs, as well as at customers not using Broadcom accelerators.
Kawwas said Tomahawk Ultra, designed to support scale-up networking with low-latency Ethernet, began deployment during the current quarter and is expected to see further use in fiscal 2027. He said Broadcom is seeing the technology used in both XPU and some GPU clusters.
Management identified land, power and data-center shell availability as important factors in determining the timing of customer deployments. Tan also cited leading-edge silicon, substrates, high-bandwidth memory and system memory as potential supply-chain constraints.
Broadcom plans to begin using its Singapore fabrication facility for substrates in fiscal 2027. Kawwas said the company is also more than tripling year-over-year capacity at its indium phosphide factories for EML, CW laser and VCSEL products, with manufacturing operations in the U.S. and Singapore.
Software Results, Margins and Capital Allocation
Infrastructure software revenue increased 29% year over year to $8.8 billion, while annual recurring revenue grew 15%. The segment’s operating margin was approximately 84%, up 650 basis points from a year earlier.
Tan said Broadcom introduced VMware Private AI Cloud, which is intended to provide enterprises with a platform to build and operate AI alongside existing applications while protecting data and supporting security and compliance requirements. He said VMware Cloud Foundation is also helping customers move workloads from public clouds to private clouds.
Chief Financial Officer Amie Thuener said consolidated gross margin was 75% in the third quarter, down 210 basis points sequentially because AI semiconductors made up a larger share of sales. The company expects fourth-quarter gross margin of roughly 73%, reflecting the increasing mix of XPUs and their greater memory content.
Thuener said management remains focused on operating margin rather than gross margin alone, given the company’s operating leverage. Broadcom ended the quarter with $24 billion in cash and $4.5 billion in inventory. It paid $3.1 billion in dividends and repaid $5.6 billion of long-term debt during the quarter, followed by another $1.5 billion of senior notes after quarter-end.
The company expects fourth-quarter capital expenditures of $1.4 billion as it invests in semiconductor capacity.
About Broadcom (NASDAQ:AVGO)
Broadcom Inc (NASDAQ: AVGO) is a global technology company that designs, develops and supplies semiconductor and infrastructure software solutions for a broad range of markets. The company’s semiconductor business provides components and systems for wired and wireless communications, enterprise and cloud storage, networking and broadband access, serving original equipment manufacturers, cloud service providers, telecommunications carriers and industrial customers worldwide. Broadcom is headquartered in Irvine, California, and operates globally with research, development and sales organizations across North America, Europe and Asia.
On the semiconductor side, Broadcom’s portfolio includes system-on-chip (SoC) and application-specific integrated circuit (ASIC) solutions, radio-frequency and connectivity components, Ethernet switching and PHY devices, storage adapters and controllers, optical transceivers and other networking silicon.
