Earnings Call Insights: Broadcom Inc. (AVGO) Q4 2025
Management View
- Hock Tan, President, CEO & Executive Director, reported, “In our fiscal 2025, consolidated revenue grew 24% year-over-year to a record $64 billion, and it’s driven by AI semiconductors and VMware. AI revenue grew 65% year-over-year to $20 billion, driving the semiconductor revenue for this company to a record $37 billion for the year. In our Infrastructure Software business, strong adoption of VMware Cloud Foundation or VCF, as we call it, drove revenue growth of 26% year-on-year to $27 billion.”
- Tan highlighted, “Q4 consolidated adjusted EBITDA was a record $12.218 billion, up 34% year-on-year.”
- The CEO detailed, “Semiconductors revenue was $11.1 billion as year-on-year growth accelerated to 35%. This robust growth was driven by the AI semiconductor revenue of $6.5 billion, which was up 74% year-on-year.”
- Tan announced, “We received an additional $11 billion order from the same customer [Anthropic] for delivery in late 2026.” He also revealed a “fifth XPU customer through a $1 billion order placed for delivery in late 2026.”
- AI networking demand remains strong, with Tan noting, “Our current order backlog for AI switches exceeds $10 billion as our latest 102-terabit per second Tomahawk 6 switch, the first and only one of its capability out there continues to book at record rates.”
- The CEO reported, “Our total order on hand in excess of $73 billion today, which is almost half Broadcom’s consolidated backlog of $162 billion. We expect this $73 billion in AI backlog to be delivered over the next 18 months.”
- For non-AI semiconductors, Tan stated, “Q4 revenue of $4.6 billion was up 2% year-on-year and up 16% sequentially based on favorable wireless seasonality.”
- On the Infrastructure Software segment, Tan said, “Q4 Infrastructure software revenue of $6.9 billion was up 19% year-on-year and above our outlook of $6.7 billion. Bookings continue to be strong as total contract value booked in Q4 exceeded $10.4 billion versus $8.2 billion a year ago.”
- Kirsten Spears, CFO & Chief Accounting Officer, stated, “Consolidated revenue was a record $18 billion for the quarter, up 28% from a year ago. Gross margin was 77.9% of revenue in the quarter, better than we originally guided on higher software revenues and product mix within semiconductors.”
- Spears added, “Q4 operating income was a record $11.9 billion, up 35% from a year ago.”
- Spears announced, “We are announcing an increase in our quarterly common stock cash dividend in Q1 fiscal 2026 to $0.65 per share, an increase of 10% from the prior quarter.”
Outlook
- Tan stated, “For Q1 ’26, we expect consolidated revenue of approximately $19.1 billion, up 28% year-on-year. And we expect adjusted EBITDA to be approximately 67% of revenue.”
- Spears provided, “We forecast Semiconductor revenue of approximately $12.3 billion, up 50% year-on-year. Within this, we expect Q1 AI semiconductor revenue of $8.2 billion, up approximately 100% year-on-year. We expect Infrastructure Software revenue of approximately $6.8 billion, up 2% year-on-year.”
- Gross margin expectations for Q1 2026 are guided to be “down approximately 100 basis points sequentially, primarily reflecting a higher mix of AI revenue.”
- The company expects the non-GAAP tax rate for Q1 and fiscal year 2026 to increase from 14% to approximately 16.5%.
Financial Results
- Spears reported, “Free cash flow in the quarter was $7.5 billion and represented 41% of revenue.”
- Inventory at quarter end was $2.3 billion, and days of inventory on hand were 58 days in Q4 compared to 66 days in Q3.
- Cash at quarter end was $16.2 billion, up $5.5 billion sequentially.
- For fiscal 2025, Spears highlighted, “Our revenue hit a record $63.9 billion with organic growth accelerating to 24% year-on-year. Semiconductor revenue was $36.9 billion, up 22% year-over-year. Infrastructure Software revenue was $27 billion, up 26% year-on-year.”
- Spears noted, “For fiscal 2025, we returned $17.5 billion of cash to shareholders in the form of $11.1 billion of dividends and $6.4 billion in share repurchases and elimination.”
Q&A
- Vivek Arya, BofA Securities: Asked for clarification on the $73 billion AI backlog and the outlook for customer-owned tooling. Tan responded that the $73 billion backlog is a snapshot and bookings have been accelerating, with continued strong demand for Tomahawk 6 switches. He addressed the customer tooling debate, stating it is “an overblown hypothesis.”
- Ross Seymore, Deutsche Bank: Inquired if TPUs going merchant would substitute for ASICs or broaden the market. Tan explained that moving from GPU to TPU is transactional, while investing in custom AI accelerators is a strategic, multiyear journey.
- Harlan Sur, JPMorgan: Asked for confirmation on the $73 billion AI backlog and supply chain capabilities. Tan confirmed the backlog and discussed the Singapore advanced packaging facility, stating, “We’re building up a fairly substantial facility for packaging, advanced packaging in Singapore, as indicated, purely for the purpose to address the advanced packaging side.”
- Stacy Rasgon, Bernstein: Probed on gross margin expectations as AI revenue ramps. Tan indicated, “The AI revenue has a lower gross margin…but we expect the rate of growth…to be so much that we get the operating leverage on our operating spending that operating margin will deliver dollars that are still high level of growth.”
- James Schneider, Goldman Sachs: Sought more detail on AI revenue acceleration in fiscal 2026 and the fifth customer. Tan declined to offer specific guidance beyond Q1, citing a dynamic backlog.
- Ben Reitzes, Melius Research: Asked about the OpenAI contract. Tan confirmed a multiyear journey with OpenAI but does not expect meaningful impact until 2027.
- Harsh Kumar, Piper Sandler: Queried on AI revenue growth diversity and silicon photonics. Tan described a mixed customer base for growth and acknowledged future potential for silicon photonics, though not immediate.
Sentiment Analysis
- Analysts were generally positive, frequently congratulating management on results and expressing interest in AI backlog, supply chain, and customer pipeline, though several pressed for additional details on margins and customer concentration.
- Management maintained a confident tone in prepared remarks, with phrases like “we see the spending momentum by our customers for — in AI, continuing to accelerate in 2026.” During Q&A, management was direct but avoided giving specifics on sensitive topics such as the exact AI revenue trajectory or customer identity, sometimes deflecting with, “I’d rather not give you guys any guidance.”
- Compared to the previous quarter, both analysts and management showed increased focus on AI backlog scale and supply chain, with slightly more pressing questions on margin and customer mix as the scale of AI orders expands.
Quarter-over-Quarter Comparison
- Guidance for Q1 2026 revenue increased from $17.4 billion in Q4 2025 guidance to $19.1 billion, signaling higher expected growth.
- AI semiconductor revenue guidance for Q1 2026 is $8.2 billion, up from $6.2 billion guided for Q4 2025, reflecting a strong acceleration.
- The AI backlog expanded from $10 billion in Q3 to $73 billion in Q4, with new large orders and a fifth XPU customer added.
- Non-AI semiconductor revenue is expected to remain stable, while Infrastructure Software continues steady, low double-digit growth.
- Management sentiment remains confident, with analysts increasingly probing for clarity on future margin impact and customer concentration.
Risks and Concerns
- Management acknowledged the challenge of supply chain constraints for advanced packaging and silicon, with ongoing investments in Singapore to mitigate risk.
- Gross margins are expected to decline as AI system sales accelerate, with management highlighting the tradeoff for higher operating leverage.
- Analysts questioned the sustainability of non-AI semiconductor revenue and the impact of large system orders on future business mix.
Final Takeaway
Broadcom management emphasized record revenue growth driven by accelerating demand for AI semiconductors and robust Infrastructure Software performance, underpinned by a massive $73 billion AI backlog to be delivered over the next 18 months. With new large-scale orders, customer diversification, and continued investment in supply chain resilience, the company projects consolidated revenue of approximately $19.1 billion for Q1 2026 and expects AI to remain the primary growth engine. Management signaled ongoing confidence in the multi-year AI opportunity, while acknowledging margin pressures and maintaining a disciplined approach to capital allocation and operational execution.