Broadcom Posts 22% Revenue Jump in Q3

Key Points

• Revenue (GAAP) rose 22% to $15.952 billion, surpassing management’s guidance.

• Artificial Intelligence (AI) semiconductor revenue jumped 63% year over year.

• Free cash flow reached a record $7.0 billion, up 47% year-over-year.

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Broadcom (NASDAQ:AVGO), a global leader in semiconductor and infrastructure software solutions, released results for Q3 FY2025 on September 4, 2025. The most important news from this earnings release was the sharp expansion in AI-driven revenue and outperformance on both the top and bottom lines. Total revenue (GAAP) reached $15.952 billion, exceeding internal guidance of approximately $15.8 billion (GAAP) and consensus expectations. Non-GAAP diluted earnings per share were $1.69, also above estimates, while Free cash flow set a new company record. The overall quarter was strong, with standout performance in custom AI accelerators, networking hardware, and the VMware software franchise, although margin dilution and continued customer concentration remain factors to watch.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.

Business Overview and Strategic Focus

The heart of Broadcom’s business lies in two primary areas: semiconductor design and the development of infrastructure software platforms. Its semiconductor products are widely used for networking, wireless connectivity, broadband, storage, and custom accelerators powering modern data centers. On the software side, Broadcom builds and sells solutions for cloud computing, virtualization, and cybersecurity.

Recently, Broadcom has expanded its focus by integrating large-scale software platforms, most notably through its acquisition of VMware, a prominent provider of virtualization and cloud infrastructure software, completed in November 2023. Success depends on maintaining a strong innovation pipeline in semiconductors, seamlessly integrating new software assets, and managing customer relationships, with about 40% of revenue stemming from the five largest customers in FY2024.

Quarter Highlights and Segment Performance

The quarter’s most notable feature was accelerating demand in the AI sector. Semiconductor Solutions revenue jumped 26% year over year (GAAP). These are specialized chips designed for high-performance computing workloads in large data centers, including those supporting artificial intelligence training and inference tasks.

AI-related semiconductor revenue reached $5.2 billion, up 63% year-over-year. This surge was paired with steady growth in networking hardware, such as Tomahawk Ethernet switches and Jericho routers, products that help hyperscale data centers manage the huge data flows generated by AI applications.

The Infrastructure Software segment also reported robust results, bringing in $6,786 million ($6.8 billion) in revenue, reflecting a 17% year-over-year increase. Growth in this segment is tied closely to the integration and performance of the VMware platform. VMware is a suite of software tools that let companies run virtual machines and cloud applications efficiently. Providing high-margin, recurring revenue for Broadcom and reducing reliance on one-time software license sales.

The company also hit record high free cash flow, reaching $7.0 billion (non-GAAP), which is 44% of total revenue. Adjusted EBITDA, a metric that indicates earnings before interest, taxes, depreciation, and amortization and helps show operating profitability, climbed to $10.7 billion. However, managers noted that the rapid growth in custom AI accelerators moderately lowered overall gross margins, as these hardware products tend to carry somewhat lower margins than the firm’s legacy infrastructure software.

Looking Ahead: Guidance, Watchpoints, and Dividend

Management provided guidance for Q4 FY2025, forecasting revenue of approximately $17.4 billion. This figure would mark a 24% year-over-year increase and relies on AI semiconductor revenue hitting $6.2 billion. The company anticipates that Adjusted EBITDA will remain at 67% of revenue, suggesting continued solid profitability. No material changes to expectations for share count were discussed.

For the next periods, investors are likely to keep a close eye on several factors. One is ongoing growth and mix in AI-related semiconductor sales, and whether intense customer concentration—with around 40% of revenue from the top five clients in FY2024—could bring volatility. The pace of integrating the VMware software platform and the stability of recurring subscription revenues are also crucial, as is Broadcom’s ability to reduce its debt, which remains high after the VMware purchase.

The quarterly dividend was unchanged at $0.59 per share.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.