Broadcom reported third-quarter earnings that exceeded analyst estimates, driven by robust revenue growth in custom AI silicon and networking equipment.
Broadcom Inc. (AVGO) reported third-quarter fiscal 2026 non-GAAP earnings of $3.32 per share, representing a 96.4% year-over-year increase and surpassing the Zacks Consensus Estimate by 3.11%. Total revenues surged 85.5% year over year to $29.59 billion, exceeding the consensus mark by 0.41%. The quarterly results were driven by robust demand for custom AI accelerators and networking solutions. AI semiconductor revenues jumped 221% year over year to $16.7 billion.
AI semiconductor revenues accounted for 56% of total revenues. XPU shipments increased more than 3.5 times year over year, representing 73% of AI revenues, while AI networking revenues rose more than 2.5 times. Broadcom shipped its Ironwood TPU v7 in high volume to Anthropic and Google, initiated production shipments of Google’s next-generation TPU v8i, and delivered OpenAI’s first-generation Jalapeno custom accelerator. The company expects Meta’s MTIA accelerator to enter production shipments in the fourth quarter.
Semiconductor Solutions revenues surged 127% year over year to a record $20.84 billion, comprising 70% of total revenues. Non-AI semiconductor revenues totaled $4.2 billion, up 5% year over year and flat sequentially. The segment’s operating margin expanded 440 basis points year over year to 61%, as revenue growth outpaced operating expense growth. Broadcom continues to invest in research and development while expanding capacity for substrates and optical components to support semiconductor demand.
Infrastructure Software revenues increased 29% year over year to $8.75 billion, contributing 30% of total revenues. Annualized recurring revenue (ARR) grew 15% year over year. Software operating margin expanded 650 basis points year over year to approximately 84%. Broadcom also introduced VMware Private AI Cloud, designed to enable enterprises to run AI workloads alongside existing applications while maintaining security, compliance, and control over data.
Non-GAAP gross margin reached $22.19 billion, translating to a 75% gross margin. The margin declined 210 basis points sequentially as AI semiconductor revenues constituted a larger portion of the sales mix. Non-GAAP operating expenses were $2.1 billion, compared with $2.04 billion a year earlier. Non-GAAP operating income increased 92% year over year to $20.1 billion, with the operating margin reaching 67.9%, reflecting strong operating leverage from the sharp revenue expansion.
The company concluded the quarter with $24 billion in cash and cash equivalents. Broadcom generated $14.20 billion in cash from operations and spent $532 million on capital expenditures, yielding a record free cash flow of $13.67 billion, equivalent to 46% of revenues. During the quarter, Broadcom paid $3.1 billion in dividends and reduced long-term debt by $5.6 billion. The board approved a new quarterly dividend of 65 cents per share.
For the fourth quarter of fiscal 2026, Broadcom projects revenues of approximately $34.8 billion, reflecting 93% year-over-year growth. Semiconductor revenues are forecast at roughly $26.1 billion, including $21.7 billion in AI semiconductor revenues, up 236%. Infrastructure Software revenues are expected at approximately $8.7 billion. The company forecasts a non-GAAP operating margin of about 66% and a gross margin of approximately 73%, as the product mix shifts further toward XPUs with higher memory content.
Broadcom has raised its full-year fiscal 2026 AI semiconductor revenue outlook to $58 billion, representing 186% year-over-year growth and exceeding its previous projection of $56 billion. The company has secured supply chain commitments to support approximately $115 billion in AI semiconductor revenues for fiscal 2027. Looking ahead, Broadcom projects fiscal 2028 AI semiconductor revenues will reach $230 billion. Management noted that current demand exceeds its fiscal 2027 outlook, though deployment timing remains contingent on factors including data-center readiness, leading-edge silicon availability, substrate supply, and memory constraints.
At present, Broadcom carries a Zacks Rank #3 (Hold). Within the broader Zacks Computer and Technology sector, several higher-ranked equities include Silicon Motion Technology (SIMO), Sandisk (SNDK), and Teradyne (TER), each currently holding a Zacks Rank #1 (Strong Buy). Their respective long-term earnings growth rates are pegged at 53.59%, 48.16%, and 54.38%.
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Free stock analysis reports are available for Broadcom Inc. (AVGO), Sandisk Corporation (SNDK), Teradyne, Inc. (TER), and Silicon Motion Technology Corporation (SIMO). This analysis originally appeared on Zacks Investment Research (zacks.com).