Broadcom AI Revenue Soars in Q2 2025

Broadcom Inc. (NASDAQ:AVGO) reported Q2 FY2025 revenue of $15 billion and consolidated adjusted EBITDA (non-GAAP) of $10 billion, driven by organic strength in AI semiconductors and VMware momentum.

The company issued Q3 FY2025 guidance of $15.8 billion in revenue (non-GAAP) and reiterated expectations for its AI semiconductor business to maintain a 60% annual growth trajectory into FY2026 (non-GAAP).

The following analysis highlights Broadcom's AI platform adoption, infrastructure software transformation, and disciplined capital allocation, with direct implications for long-term investors.

AI Semiconductor Acceleration and Hyperscaler Demand Visibility

AI semiconductor revenue reached $4.4 billion in Q2 FY2025, with AI networking representing 40% of AI segment revenue. The Tomahawk 6 switch launch delivers 102.4 Tbps capacity, positioning Ethernet at the core of cluster architecture for both scale-out and scale-up at hyperscale customers.

"And accordingly, we do anticipate now our fiscal 2025 growth rate of AI semiconductor revenue to sustain into fiscal 2026."
— Hock Tan, President and CEO

Maintaining 60% year-over-year AI semiconductor revenue growth into FY2026 (non-GAAP) signals continued outperformance well ahead of semiconductor industry averages, supported by enduring hyperscaler investment in both training and inference workloads, and deepening Broadcom’s exposure to high-growth datacenter infrastructure spending cycles.

Infrastructure Software Subscription Conversion Drives Recurring Revenue

Infrastructure software revenue rose to $6.6 billion, up 25% year over year, exceeding the $6.5 billion non-GAAP guidance. Broadcom reported that over 87% of its largest 10,000 customers have migrated to the VMware Cloud Foundation (VCF) subscription, compared to legacy perpetual licenses, cascading into double-digit ARR (annual recurring revenue) growth.

"Customers are increasingly turning to VCF to create a modernized private cloud on-prem, which will enable them to repatriate workloads from public clouds while being able to run modern container-based applications and AI applications. Of our 10,000 largest customers, over 87% have now adopted VCF."
— Hock Tan, President and CEO

Accelerated VCF adoption enhances the stability and quality of Broadcom’s revenue streams, anchoring the VMware acquisition as a material driver of operating leverage and cash flow.

Disciplined Capital Allocation and Debt Reduction Post-VMware

Free cash flow totaled $6.4 billion, with $2.8 billion returned to shareholders via dividends and $4.2 billion through share repurchases, while gross principal debt was trimmed from $69.4 billion to $67.8 billion following the quarter. The stated priority remains deleveraging toward a target debt-to-EBITDA ratio of 2.0, with M&A plans reserved for significant, strategic opportunities requiring debt financing.

"But having said all that, our use of cash outside the dividends would be, at this stage, used towards reducing our debt. And I know you're gonna ask, what about M&A? Well, kind of M&A we will do will, in our view, would be significant, would be substantial enough that we need debt."
— Hock Tan, President and CEO

This methodical capital allocation signals management’s commitment to balance sheet quality, maximizing financial flexibility for opportunistic expansion or buybacks.

Looking Ahead

For Q3 FY2025, Broadcom guides consolidated revenue to $15.8 billion (up 21% year over year, non-GAAP), with semiconductor revenue (non-GAAP) of $9.1 billion (up 25% year over year), infrastructure software revenue (non-GAAP) of $6.7 billion (up 16% year over year), and adjusted EBITDA margin of at least 66% (non-GAAP).

The company reiterates expectations for AI semiconductor revenue growth of 60% year over year (non-GAAP) to sustain into FY2026. Conversion of VMware contracts to subscription will continue for at least another year, with no update to 2027 targets provided.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI 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.