Broadcom Inc. AVGO

Key data

The business

Broadcom sells two things. Semiconductors: networking switches and custom AI accelerators that the largest cloud companies use to build training clusters, plus wireless chips inside Apple phones and a long tail of storage and broadband silicon. And infrastructure software, mostly VMware, mainframe tooling and security, sold to large enterprises on multi-year subscriptions. Chips are paid per program and per unit; software is billed as a recurring subscription, which is why $14.2B sits in deferred revenue.

The engine is the custom accelerator business, which turns a hyperscaler's decision to build its own AI chip rather than buy Nvidia's into actual silicon, and it is what moves the stock. Revenue has stepped up every quarter, $15.95B, $18.02B, $19.31B, $22.19B, with April gross margin of 67.2% and operating margin of 49.0%. What changed is VMware, bought with $126.1B of goodwill and intangibles and repriced onto subscription.

Business read. A lumpy, customer-concentrated silicon ramp bolted to a software annuity, financed with $45.3B of net debt.

Things you might not know

Broadcom's trailing twelve month effective tax rate is 3.8%, and FY2025 carried an outright tax benefit of $397M rather than an expense. Normalizing to 15% would take trailing earnings per share from about $6.18 to about $5.43, roughly 12%, with nothing operating changed. That normalization is the source author's computation, not a company disclosure.

The board approved a CEO performance award on 2025-09-03 covering 610,521 target shares that pays zero unless AI product revenue exceeds $60B, and pays 300% of target above $120B in any four consecutive quarters between fiscal 2028 and fiscal 2030. The CEO's long-term pay is now indexed to AI revenue itself.

Broadcom beat consensus in each of the last four reported quarters by 1.8%, 4.3%, 1.0% and 1.7%. Beats that small are a guidance style rather than luck, since the company guides to a number it intends to clear. It also means the September 2 print carries almost no built-in cushion.

Fundamentals

The source report publishes quarterly detail only for revenue and margins, so the year-over-year column is fiscal year as filed. FY2025 grew revenue 24% and nearly doubled operating income as the first full year of VMware amortization and a $3.7B tax expense rolled out of the comparison. Free cash flow outran GAAP earnings by a wide margin, and stock compensation grew faster than revenue.

Valuation

Peers: Nvidia is the only peer named in the source report; the adjacent set is AMD, Marvell, Qualcomm and Texas Instruments.

The source publishes no peer medians and no vendor peer data was retrievable in this session, so the peer column is left honest rather than filled. Trailing 61.4x and forward 18.8x are the same company on two accounting bases: one carries $7.57B of stock compensation and VMware amortization, the other removes both.

Management

Compensation

The linchpins

Win big if

Consensus needs $29.2B on September 2, up 31.8% sequentially off a base that just grew 14.9%, and that is precisely the number custom accelerator programs ramping into volume would produce. The first observable proof is the revenue line itself clearing $29B on September 2. The confirming signal is a November guide pointing to a further step up and keeping FY2026 near the $105.7B consensus, after which 18.8x FY2027 stops reading as an estimate and starts reading as a run rate.

Surprised down if

The AI silicon revenue is real but lumpy and concentrated in a handful of programs with a handful of buyers, and Broadcom does not break out per-customer revenue, so one program slipping a quarter takes roughly $5B out of the print with no cushion at 31.8x this year's number. The first observable proof is September revenue below roughly $27B, or a guide implying FY2026 revenue below $100B. The confirming signal is stock compensation still near 11.8% of revenue against buybacks near $6B while the 3.8% tax rate normalizes toward the mid-teens, cutting earnings about 12%.

Last word

A quarter needing 31.8% sequential growth lands September 2, and the co-founder booked his $127M exit back in June.