avgo

Broadcom: chips ship, software sticks

Quarterly earnings
Ruben Dalfovo
Ruben Dalfovo

Investment Strategist

Key takeaways

  • Beat and raise. Q3 revenue USD 15.95bn (+22%). AI USD 5.2bn (+63%). Q4 guide USD 17.4bn with AI at USD 6.2bn
  • Strategy is simple. Custom AI chips plus Ethernet now. VMware subscriptions for staying power
  • OpenAI shifts the curve. A multi-year custom-chip deal points to 2026 production and deeper visibility


Custom chips, compounding visibility

Broadcom reported Q3 on 4 September with record sales and another AI step-up. The headline was a new multi-billion-dollar AI order. Several outlets report the buyer is OpenAI and that the two will co-develop a custom accelerator for internal use, targeting mass production in 2026, with deal size near USD 10 billion. If that’s right, two things follow. First, a marquee customer diversifies beyond a single GPU supplier. Second, custom programs usually run across multiple chip generations, creating visibility that merchant silicon rarely offers. Broadcom has not named the customer, so keep “reported” in your notes—yet the direction looks credible given Broadcom’s Google TPU track record and the stronger AI guide.

What happened, what’s next

Print vs consensus. Beat-and-raise. Broadcom posted Q3 revenue of USD 15.95bn vs USD 15.83bn expected and earning per share USD 1.69 vs USD 1.66. AI revenue rose 63% to USD 5.2bn.

Outlook. Q4 revenue guided to USD 17.4bn (above expectations) with AI at USD 6.2bn. Read-through: accelerators keep scaling, Ethernet tight into 800G, VMware conversions steady.

Tone. Execution first. Management spoke to firm delivery windows and demand tied to booked orders. The highlight is a new multi-billion AI customer order. Press reports point to OpenAI co-developing a custom chip, with mass production in 2026.

Price action. On 4 September 2025, Broadcom closed at USD 306.10, up USD 3.65 (+1.2%). After-hours trading moved higher as the guide landed above consensus.

Valuation read. Still premium. A clean beat plus an above-street guide supports it, but the bar rises each quarter. Delivery dates and cash conversion must keep pace with the AI narrative, or the multiple does the talking first.

Broadcom’s strategy: roads and engines, one map

Bigger AI models need two things: faster roads and more efficient engines. Think of a transport system with three parts working together.

  • Custom accelerators are the engines. Built with top customers for a known route (e.g., Google’s TPU). They roll off the line on dated schedules, sized to demand.

  • Ethernet is the road network. 400G today, 800G ramping, ecosystem ready for 1.6T. Switches, optics, power, and cooling must scale together for 800G; one weak link bottlenecks the cluster.

  • VMware is traffic control and tolls. Legacy licences convert to Cloud Foundation subscriptions; then networking and security attach on top.

For buyers, fewer vendors mean a single roadmap and clearer service level agreements. For investors, contracted orders and delivery windows steady guidance. Chips drive volume now; software keeps the cash flowing.

The risks: customers can postpone projects, pour more budget back into GPUs, or delay road upgrades. Power and cooling can slow the move to faster lanes like 800G. On software, pushing clients to subscriptions can create friction. If both the roads and engines stall at once, margins take the hit.

AI: threat and opportunity

Opportunity. Every bigger model needs fast, standard networks and efficient accelerators. As inference spreads beyond a few training islands, Ethernet’s price/performance helps it win. Custom silicon broadens as more workloads stabilise. The OpenAI partnership adds a second proof point beyond Google—multi-year design, 2026 mass production targeted, and likely repeat generations if v1 lands. That is real visibility.

Threat. Digestion happens. Hyperscalers can push deliveries or tilt spend back to GPUs or in-house chips. Power, optics, and cooling can slow 800G rollouts. On software, Cloud Foundation conversions can face timing friction. If roads and engines stall at once, mix pressures gross margin and cash.

Positioning: engines, roads, and tolls

Broadcom supplies the engines (task-specific accelerators), lays the roads (Ethernet fabric), and runs the tolls (VMware software). Its edge is depth:

  • Co-designed engines lock in customers and raise switching costs.
  • Standard roads: Ethernet uses tooling and skills every data center already has.
  • Toll leverage: VMware’s installed base makes up- and cross-sell easier.


    Risks:

  • Customer concentration.
  • Nvidia's InfiniBand strength at the elite training tier.
  • Slower Cloud Foundation conversions.
  • Power/cooling/optics gating 800G rollouts.

Investor watch

  • Guide and cadence: Q4 bridge, AI run-rate, date-stamped delivery windows.

  • AI mix: accelerators vs Ethernet; 800G momentum and any 1.6T signals.

  • VMware durability: Cloud Foundation conversions, renewal tone, RPO, attach into networking/security.

  • Margins and cash: semi gross margins on accelerator scale, software margins stability, free cash flow conversion vs inventory builds.

What decides the next leg

This print says the organs and arteries kept pace with the industry’s brain. Two drivers matter now: guidance credibility and AI breadth. Two risks stand out: digestion and conversion friction. If dates hold, 800G ramps cleanly, and VMware cash keeps compounding, duration extends. If schedules slip, the multiple moves first. Build the engines, pave the roads, run the tolls and the story writes itself.

 

This material is marketing content and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..

Quarterly Outlook

01 /

  • Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally

    Quarterly Outlook

    Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity

    Quarterly Outlook

    Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity

    John J. Hardy

    Global Head of Macro Strategy

    After the chaos of Q2, the quarter ahead should get a bit more clarity on how Trump 2.0 is impacting...
  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.