Broadcom Inc. (AVGO) Q4 2025 Earnings Call Transcript
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Overview
The earnings call reveals strong financial performance with significant AI revenue growth and a solid $73 billion AI backlog. Despite lower gross margins, operating margins are expected to grow in dollar terms. The management's optimistic outlook for fiscal '26 AI revenue and strategic investments in custom accelerators are positive indicators. The Q&A session confirmed backlog growth and supply chain readiness, despite some vague responses. The overall sentiment is positive, with a likely stock price increase of 2% to 8%.
Key Financial Performance
Consolidated Revenue (Fiscal 2025) $64 billion, up 24% year-over-year, driven by AI semiconductors and VMware.
AI Revenue (Fiscal 2025) $20 billion, up 65% year-over-year, driven by growth in AI semiconductors.
Semiconductor Revenue (Fiscal 2025) $37 billion, a record high, driven by AI semiconductors.
Infrastructure Software Revenue (Fiscal 2025) $27 billion, up 26% year-over-year, driven by strong adoption of VMware Cloud Foundation.
Total Revenue (Q4 Fiscal 2025) $18 billion, up 28% year-over-year, driven by growth in AI semiconductors and Infrastructure Software.
Adjusted EBITDA (Q4 Fiscal 2025) $12.218 billion, up 34% year-over-year, driven by better-than-expected growth in AI semiconductors and Infrastructure Software.
Semiconductor Revenue (Q4 Fiscal 2025) $11.1 billion, up 35% year-over-year, driven by AI semiconductor revenue of $6.5 billion, which was up 74% year-over-year.
Non-AI Semiconductor Revenue (Q4 Fiscal 2025) $4.6 billion, up 2% year-over-year, driven by favorable wireless seasonality.
Infrastructure Software Revenue (Q4 Fiscal 2025) $6.9 billion, up 19% year-over-year, driven by strong bookings and VMware integration.
Operating Income (Q4 Fiscal 2025) $11.9 billion, up 35% year-over-year, driven by higher software revenues and favorable operating leverage.
Free Cash Flow (Q4 Fiscal 2025) $7.5 billion, representing 41% of revenue, driven by strong cash flow generation.
Gross Margin (Q4 Fiscal 2025) 77.9% of revenue, better than guided, due to higher software revenues and favorable product mix.
Adjusted EBITDA (Fiscal 2025) $43 billion, representing 67% of revenue, driven by organic growth in semiconductors and software.
Free Cash Flow (Fiscal 2025) $26.9 billion, up 39% year-over-year, driven by strong cash flow generation.
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Operating Highlights
AI semiconductors: AI revenue grew 65% year-over-year to $20 billion in fiscal 2025, driving semiconductor revenue to a record $37 billion. AI semiconductor revenue in Q4 was $6.5 billion, up 74% year-on-year. A $10 billion order for TPU Ironwood racks was received in Q3, followed by an additional $11 billion order in Q4 from Anthropic. A fifth XPU customer placed a $1 billion order for delivery in late 2026.
AI networking: Demand for AI networking components like AI switches, DSPs, optical components, and PCI Express switches has been strong. The order backlog for AI switches exceeds $10 billion, and total AI-related orders exceed $73 billion, expected to be delivered over the next 18 months.
Infrastructure Software: VMware Cloud Foundation adoption drove a 26% year-on-year growth in Infrastructure Software revenue to $27 billion in fiscal 2025. Q4 revenue was $6.9 billion, up 19% year-on-year. The integration of VMware has been completed, and the company expects low double-digit growth in Infrastructure Software revenue in fiscal 2026.
AI market expansion: AI revenue is expected to double year-on-year to $8.2 billion in Q1 fiscal 2026. The company has secured significant orders for AI semiconductors and networking components, indicating strong market demand.
Revenue growth: Consolidated revenue grew 24% year-on-year to $64 billion in fiscal 2025. Q4 revenue was $18 billion, up 28% year-on-year.
Profitability: Q4 adjusted EBITDA was $12.2 billion, up 34% year-on-year. Fiscal 2025 adjusted EBITDA was $43 billion, representing 67% of revenue.
Cash flow and dividends: Free cash flow in fiscal 2025 was $26.9 billion, up 39% year-on-year. The company announced a 10% increase in its quarterly dividend for fiscal 2026.
AI focus: The company is focusing on AI as a key growth driver, with significant investments in AI semiconductors and networking components. AI revenue is expected to continue accelerating in fiscal 2026.
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Risk or Challenges
Enterprise Spending: Limited signs of recovery in enterprise spending, which could impact non-AI semiconductor revenue.
Non-AI Semiconductor Revenue: Forecasted to remain flat year-on-year and down sequentially in Q1 fiscal 2026 due to wireless seasonality.
Geographic Tax Impact: Increase in non-GAAP tax rate from 14% to 16.5% in fiscal year 2026 due to global minimum tax and shift in geographic mix of income.
Inventory Management: Increase in inventory levels and days of inventory on hand, which could indicate potential inefficiencies or overstocking.
Economic Dependency on AI Revenue: Heavy reliance on AI revenue growth to drive overall company growth, which could pose risks if AI market conditions change.
Customer Concentration: Significant orders from a few large customers (e.g., $11 billion order from Anthropic), which could lead to revenue volatility if customer demand changes.
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Guidance & Outlook
AI Revenue Growth: AI revenue is expected to continue accelerating and drive most of the company's growth in 2026. For Q1 fiscal 2026, AI revenue is forecasted to double year-on-year to $8.2 billion.
Non-AI Semiconductor Revenue: Non-AI semiconductor revenue is expected to remain stable in 2026. For Q1 fiscal 2026, non-AI semiconductor revenue is forecasted to be approximately $4.1 billion, flat year-on-year and down sequentially due to wireless seasonality.
Infrastructure Software Revenue: Infrastructure Software revenue is expected to grow at a low double-digit percentage for fiscal 2026. For Q1 fiscal 2026, revenue is forecasted to be approximately $6.8 billion, up 2% year-on-year.
Consolidated Revenue: For Q1 fiscal 2026, consolidated revenue is forecasted to be approximately $19.1 billion, up 28% year-on-year.
Adjusted EBITDA: For Q1 fiscal 2026, adjusted EBITDA is expected to be approximately 67% of revenue.
AI Order Backlog: The current AI order backlog exceeds $73 billion, expected to be delivered over the next 18 months.
Dividend Increase: The quarterly common stock cash dividend is increased to $0.65 per share for Q1 fiscal 2026, a 10% increase from the prior quarter. The annual dividend for fiscal 2026 is projected to be $2.60 per share, a 10% year-on-year increase.
Share Repurchase Program: The share repurchase program is extended, with $7.5 billion remaining through the end of calendar year 2026.
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Shareholder Return Plan
Cash Dividends Paid in Q4: $2.8 billion based on a quarterly common stock cash dividend of $0.59 per share.
Fiscal 2025 Dividends: $11.1 billion in total dividends paid.
Increase in Quarterly Dividend for Fiscal 2026: Announced an increase to $0.65 per share, a 10% increase from the prior quarter.
Annual Dividend for Fiscal 2026: Projected to be $2.60 per share, a 10% year-on-year increase.
Dividend Growth History: 15th consecutive annual increase since dividends were initiated in fiscal 2011.
Share Repurchases in Fiscal 2025: $6.4 billion in share repurchases and elimination.
Share Repurchase Program Extension: Board approved an extension of the program with $7.5 billion remaining through the end of calendar year 2026.
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Key Q&A
Q:Hock, you said $73 billion over 18 months for AI, that's roughly $50-ish billion plus for fiscal '26 for AI. Can you clarify this? Also, how do you see your XPU content and share at your largest customer evolve over the next 1 or 2 years?
A:Hock confirmed the $73 billion backlog for AI-related components over the next 18 months, with expectations for more bookings. He highlighted the rapid growth of Tomahawk 6 switches and dismissed the idea of customer-owned tooling as an overblown hypothesis, emphasizing the complexity and evolution of silicon technology.
Q:Do you believe TPUs going to a merchant go-to-market is a substitution effect for customers who otherwise would have done ASICs with you, or is it broadening the market? What are the financial implications?
A:Hock explained that moving from GPU to TPU is a transactional move, while creating custom AI accelerators is a long-term strategic investment. He emphasized that the shift to TPUs does not deter customers from investing in custom accelerators.
Q:Can you confirm the $73 billion AI backlog over the next 6 quarters and whether it will grow? Also, does the team have the necessary supply chain commitments to support this demand?
A:Hock confirmed the $73 billion backlog and expects it to grow as more orders come in. He discussed the challenges in the supply chain, particularly in advanced packaging, and highlighted the Singapore facility's role in addressing these challenges. He also mentioned sufficient silicon supply from TSMC.
Q:With the original $10 billion deal and follow-on orders, can you describe how you will deliver these? Is it an XPU or a rack?
A:Hock described it as a system sale, including multiple components beyond XPUs. He emphasized the importance of being responsible for the entire system and certifying its functionality.
Q:How should we think about gross margins as AI revenue ramps and system sales increase? Will operating margins remain flat or come down?
A:Hock and Kirsten explained that AI revenue has lower gross margins due to component pass-throughs, but operating leverage will result in higher operating margin dollars. Gross margin percentages will decline, but operating margins will still grow in dollar terms.
Q:Can you calibrate expectations for AI revenue in fiscal '26? Is the $1 billion order for the fifth customer OpenAI?
A:Hock stated that AI revenue is likely to accelerate in fiscal '26 but did not provide precise guidance. He confirmed the fifth customer is real but did not explicitly confirm it as OpenAI. He mentioned a multiyear journey for custom accelerators with OpenAI.
Q:Can you speak to the OpenAI contract and its contribution timeline?
A:Hock clarified that the OpenAI agreement involves 10 gigawatts of capacity from 2027 to 2029 and is separate from the custom accelerator program, which is progressing quickly.
Q:How do you expect content to grow for Broadcom generation to generation in custom silicon?
A:Hock highlighted the variations in custom accelerators for each customer, allowing for multiple chips tailored to specific workloads. He emphasized the benefits of hardware differentiation in custom accelerators.
Q:Can you discuss supply chain resiliency and visibility, particularly for CoWoS, and how you are addressing bottlenecks?
A:Hock mentioned that Broadcom has a good handle on supply chain bottlenecks due to its involvement in key components. He expressed confidence in addressing these challenges through 2026.
Q:What is your view on silicon photonics technology?
A:Hock acknowledged the potential of silicon photonics for efficient interconnects but stated it is not yet ready for widespread deployment. He emphasized Broadcom's readiness for this technology when the time comes.
Q:What is the state of non-AI semiconductor revenue, and what is needed for growth?
A:Hock noted stability in non-AI semiconductor revenue, with broadband recovering well. He attributed the lack of growth to AI's dominance in enterprise and hyperscaler spending.
Q:What percentage of the 18-month backlog is full systems, and will rack sales continue beyond that period?
A:Hock stated that the demand for compute capacity will determine the continuation of rack sales. He did not provide a specific percentage of the backlog for full systems.
Q:Review of Unclear Management Responses
A:Management avoided directly answering whether the $1 billion order for the fifth customer is OpenAI, only confirming the customer is real. Additionally, Hock did not provide precise guidance for fiscal '26 AI revenue, citing the dynamic nature of the backlog.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI backlog
AI cloud
AI result
AI switch
APIs application
Apple Coherent
Bookings contract
Coherent SSI
DSPs component
Demand center
Express switch
Foundation VCF
Gemini AI
Google TPUs
Infrastructure Software
Infrastructure software
Investors section
Ironwood customer
Kirsten
LLM peer
LLM platform
SSI example
Semiconductors
adoption
backlog AI
customer order
delivery
record AI
recovery
semiconductor Infrastructure
semiconductor seasonality
AVGO Transcript
Broadcom Inc. (AVGO) Q4 2025 Earnings Call Transcript
Positive12-12
The earnings call reveals strong financial performance with significant AI revenue growth and a solid $73 billion AI backlog. Despite lower gross margins, operating margins are expected to grow in dollar terms. The management's optimistic outlook for fiscal '26 AI revenue and strategic investments in custom accelerators are positive indicators. The Q&A session confirmed backlog growth and supply chain readiness, despite some vague responses. The overall sentiment is positive, with a likely stock price increase of 2% to 8%.
Broadcom Inc. (AVGO) Presents At Goldman Sachs Communacopia + Technology Conference 2025 Transcript
Neutral9-9
Broadcom Inc. (AVGO) Q3 2025 Earnings Call Transcript
Positive9-4
The earnings call indicates strong financial performance, with record revenue and EBITDA growth driven by AI semiconductors. The backlog and future commitments are robust, and guidance remains optimistic despite minor margin declines. The Q&A reveals increased AI demand and strategic customer growth, although some specifics were withheld. Overall, the positive financial metrics, optimistic outlook, and record backlog suggest a likely positive stock reaction, despite the lack of share repurchases and some margin pressure.
Broadcom Inc. (AVGO) Q2 2025 Earnings Call Transcript
Positive6-5
The earnings call reflects strong financial performance with a 20% revenue increase, robust growth in AI semiconductors, and substantial share repurchases. Despite potential risks like economic uncertainties, supply chain challenges, and increased debt, the optimistic guidance and strategic investments in AI and infrastructure software are positive indicators. The Q&A section reveals confidence in sustaining growth, though some concerns remain. Overall, the positive financial results and shareholder returns suggest a positive stock price movement, potentially in the 2% to 8% range.
AVGO Report
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