Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
Broadcom earnings up next: AI finale
Ruben Dalfovo
Investment Strategist
Key takeaways
- Q3 results due 4 September; guidance is the swing factor
- The market reaction hinges on two levers: AI chips ramping and VMware subscriptions renewing
- Stellar 12-month share price performance and rich multiples: guidance and tone decide the next leg
Semis plus software, one flywheel
All eyes turn to Broadcom’s Q3 earnings on 4 September, one of the last big tech heavyweights to report this season. Broadcom runs on two engines: semiconductors and infrastructure software via VMware. The chips power hyperscaler networks and AI training. The software virtualises, manages, and secures private clouds. Before the numbers, a quick toolkit: accelerators, Ethernet, virtualization.
AI accelerators (ASICs)
Think of a factory line built for one task. An accelerator is a custom chip (application-specific integrated circuit, ASIC) designed with a big cloud customer to handle AI workloads faster and more affordably.
Ethernet AI networking
AI runs on clusters of tens of thousands of servers. They must talk to each other quickly. Ethernet is the “roads and highways” that move data between servers. Broadcom sells the switch chips and adapters that make those roads faster (400G, moving to 800G and beyond).
How accelerators and Ethernet fit together
Accelerators are the engines. Ethernet is the traffic system. Engines without roads stall; roads without engines sit empty. A healthy Broadcom print shows both: accelerators shipping on plan and Ethernet staying tight as clusters grow.
VMware and virtualization
One physical server can be sliced into many “virtual machines.” That is virtualization. VMware provides the software to do this and to manage compute, storage, and networking in private clouds. VMware Cloud Foundation (VCF) bundles the core pieces into a subscription.
What to watch in the print
Last quarter revenue rose 20% to USD 15.0 billion. AI semiconductors grew 46% to over USD 4.4 billion. VMware delivered USD 6.6 billion, up 25%. Management guided Q3 revenue to USD 15.8 billion. Coverage skews positive: most analysts rate Broadcom Buy, with 12-month targets between USD 300-340. Shares have nearly doubled in the past year and trade near 37x next year’s earnings—so the bar is high.
This quarter is about mix, visibility, and credibility. Where does growth come from, how durable is it, and what does management signal for Q4 and into 2026?
AI hardware mix
Custom accelerators vs Ethernet networking. Look for order depth with hyperscalers, ramp timing, and any delivery bottlenecks. A healthy mix means accelerators scaling while Ethernet stays tight, not one spiking as the other fades.
VMware subscriptions
Migration to Cloud Foundation, renewal rates, and attach into networking/security. Billings and remaining performance obligations (RPO) show durability. Clean renewals with rising multi-product attach signal pricing power and lower churn risk.
Margins and cash
Semiconductor gross margin as accelerators scale, software margins holding, and free-cash-flow conversion. Stable cash against rising AI capex at customers suggests demand is real, not just pipeline noise.
Guide and pipeline
Q4 revenue guide, AI run-rate color, and 2026 demand signals. Credible bridges beat big promises. If management ties guidance to booked orders and delivery windows, the market will trust it more.
The possible scenarios
Bull case — two engines, one flywheel
AI demand widens. Accelerators ramp on schedule while Ethernet stays tight. VMware conversions run clean with higher Cloud Foundation attach. Guidance lifts Q4 and sketches 2026 with date-stamped delivery windows. Cash conversion holds despite investment.
On the tape, AI revenue runs ahead of plan. Gross margin firms. Software RPO climbs and renewal commentary stays clean. The Q4 bridge is clear and date-stamped, with disciplined operating expenses and tight delivery windows.
Expected market read: shares re-rate higher as the story shifts from a networking cycle to a balanced AI-plus-software flywheel. Duration extends and conviction rises, with positive read-through to AI networking and data-centre software peers.
Bear case — digestion and delays
Hyperscalers push deliveries. Networking digests just as accelerator ramps slip. VMware faces timing pushback on bundles, slowing conversions and billings. Guidance turns cautious and cash softens on working-capital build.
On the tape, AI revenue slips below the run-rate. Mix dents margin. RPO growth cools, renewal tone softens, and Q4 language tightens. Delivery windows stretch and working capital builds.
Expected market read: de-rating risk. Attention swings to execution gaps and hardware cyclicality, with pressure spreading to AI-networking suppliers and enterprise-software names tied to VMware budgets.
Between these sits the base case: steady execution. Results near guide, balanced AI mix, solid but unspectacular RPO, and a tidy Q4 bridge. Shares likely stay range-bound while investors wait for the next proof point.
Guidance will be the swing factor
Markets price tomorrow, not yesterday. The print sets the baseline. The guide sets the path. Shares move on the gap between what investors expect and the route management lays out. Clear bridges, firm dates, and a clean mix beat big adjectives every time.
Recent results restated this simple rule: markets price the path, not the print. Alibaba showed it. Cloud and AI momentum beat softer profit. For more, see: Alibaba cloud and chips carry the load | Saxo. Apply the same lens here. If Broadcom ties revenue to contracted demand, gives delivery windows, and shows software cash compounding, investors lean in. If dates slip or mix is vague, expect multiple compression and near-term drawdown. Tone matters. Specifics beat superlatives.
Investor playbook
- AI hardware mix: accelerators vs Ethernet. Watch order depth, ramp dates, and delivery windows. Healthy = accelerators scale while Ethernet stays tight.
- VMware subscriptions: VCF migration, renewals, and attach into networking/security. Billings and RPO test durability.
- Margins and cash: semi gross margin as accelerators scale, software margins steady, FCF conversion vs working-capital swings.
- Guide and pipeline: Q4 bridge, AI run-rate, 2026 demand signals. Tie guidance to booked orders and dates.
Final take for investors
Broadcom’s story is simple to state and hard to execute: keep AI and VMware pulling in the same direction. Last quarter showed the formula—AI semiconductors and VMware subscriptions delivered double-digit growth. The main driver now is guidance credibility around AI demand breadth and execution on VMware conversion. Key risks are any slowdown in hyperscaler orders or friction in VMware renewals. The near-term catalyst is the 4 September call—numbers plus tone on AI mix and software cash dynamics will set the path. Chips must ship, software must stick—if the guide stitches them together, the rally gets its next lap.
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..
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..
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