Broadcom's Q3 AI chip revenue exceeded expectations with a 63% increase, a mysterious new customer placed orders worth 10 billion, and the AI outlook for the next fiscal year is expected to "significantly" improve | Earnings Report Insights

Nvidia's strong challenger, ASIC chip giant Broadcom, maintained a double-digit revenue growth momentum in the last fiscal quarter, stronger than the already high expectations on Wall Street, and expects its artificial intelligence (AI) chip business to continue to accelerate this fiscal quarter.

Broadcom CEO Hock Tan commented on the performance, stating that Broadcom's revenue in the third fiscal quarter reached a historical high for the same period, benefiting from the sustained strong growth of custom AI accelerators, networking, and VMware businesses. He expects that due to continued strong investments from customers, revenue from AI chips will accelerate to $6.2 billion this fiscal quarter, achieving growth for 11 consecutive quarters.

During the earnings call, Hock Tan released positive news about the strong demand for custom AI chips. He mentioned that Broadcom is collaborating with potential customers to develop AI accelerators, indicating that Broadcom is entering the market dominated by Nvidia. He later stated, "Last quarter, one of the potential customers placed a production order with Broadcom," without disclosing the specific customer's name.

According to Hock Tan, the aforementioned undisclosed "mysterious" fourth customer brought Broadcom orders worth $10 billion, and he classified this customer as a qualified customer for Broadcom's custom AI accelerator XPU.

Hock Tan then stated that Broadcom "now expects a significant improvement in the AI revenue outlook for fiscal year 2026 compared to last quarter's forecast," and added, "Starting in 2026, our shipment volume will be very strong." Comments suggest that these statements help alleviate investors' concerns about a slowdown in AI business.

After the earnings report was released, Broadcom's stock price fluctuated in after-hours trading, initially jumping about 2% before turning to a decline of over 1%, but later rebounded during the earnings call, with after-hours gains expanding to over 4%.

As of Wednesday's close, Broadcom's stock price has nearly doubled in the past year, becoming the third-highest gainer among Nasdaq 100 index constituents, with a market value increase of approximately $730 billion during the same period. However, given the recent weak performance of AI chip stocks like Nvidia after their earnings reports, some market participants previously worried that even with Broadcom's impressive performance, it might face the risk of "buying the rumor, selling the news."

On Thursday, September 4, Eastern Time, Broadcom announced its financial data for the third fiscal quarter of 2025 (hereinafter referred to as "Q3") ending August 3, 2025, and provided performance guidance for the fourth fiscal quarter ("Q4").

1) Key Financial Data:

Revenue: Q3 revenue was $15.95 billion, a year-on-year increase of 22%, with analysts expecting $15.84 billion and the company guiding $15.8 billion, up 20% year-on-year from the previous quarter.

Net Profit: Adjusted net profit for Q3 under non-GAAP was $8.404 billion, a year-on-year increase of 37.3%, compared to a 44% increase in the previous quarter.

EBITDA: Adjusted EBITDA for Q3 was $10.702 billion, a year-on-year increase of 30.1%, with analysts expecting about $10.5 billion, a profit margin of 67.1%, and a year-on-year increase of 34.6% with a profit margin of 66.7% in the previous quarter

EPS: Adjusted earnings per share (EPS) for the third quarter was $1.69, a year-on-year increase of 36.3%, with analysts expecting $1.66, and a year-on-year increase of 43.6% in the previous quarter.

2) Segment Business Data:

Semiconductor Solutions: Revenue from semiconductor solutions, including ASICs, was $9.166 billion, a year-on-year increase of 26%, accounting for 57% of total revenue, with analysts expecting $9.1 billion, and a year-on-year increase of 16.7% in the previous quarter, accounting for 56% of total revenue.

Infrastructure Software: Revenue from infrastructure software, including VMware, was $6.786 billion, a year-on-year increase of 17%, accounting for 43% of total revenue, with a year-on-year increase of 24.8% in the previous quarter, accounting for 44% of total revenue.

3) Performance Guidance:

Revenue: Fourth quarter revenue is expected to be approximately $17.4 billion, a year-on-year increase of 23.8%, with analysts expecting $17.05 billion.

EBITDA: Fourth quarter EBITDA margin is expected to be around 67%, with analysts expecting 66%.

Revenue Hits Record High in Third Quarter; AI Chip Revenue Expected to Increase to $6.2 Billion in Fourth Quarter

The financial report shows that Broadcom's revenue and profit growth in the third quarter exceeded Wall Street's expectations. The quarterly revenue set a record for the highest third quarter in the company's history, with a year-on-year growth rate increasing from 20% in the previous quarter to 22%, while analysts expected a growth of about 21%.

Broadcom's EPS year-on-year growth rate slowed from nearly 44% in the previous quarter to about 36% in the third quarter, but still outperformed analysts' expectations of less than 34% growth.

Chen Fuyang stated that Broadcom's AI semiconductor revenue grew by 63% year-on-year to $5.2 billion in the third quarter, which also exceeded analysts' expectations of $5.11 billion. Moreover, the growth rate was higher than the previous quarter. In the second quarter, Broadcom's AI chip business revenue grew by 46% year-on-year.

In terms of performance guidance, Broadcom expects revenue growth in the fourth quarter to accelerate further to nearly 24%, stronger than analysts' expected growth of about 21%.

Chen Fuyang mentioned that Broadcom expects AI semiconductor revenue to increase to $6.2 billion in the fourth quarter. This guidance is 6.5% higher than analysts' expectations of $5.82 billion, equivalent to a quarter-on-quarter growth of 19%, which also exceeds the approximately 18% growth rate of the third quarter.

Kinngai Chan, an analyst at Summit Insights, commented that the demand for AI-related semiconductors from Broadcom remains strong. The growth in the third quarter was mainly attributed to AI interconnectivity and custom ASIC business.

Revenue from Semiconductor Solutions Including ASICs Increased by 26%

By segment, revenue from semiconductor solutions, including ASICs, accelerated from less than 17% in the previous quarter to 26% in the third quarter.

ASICs are integrated circuits tailored for specific fields or functions. Previously, it was commented that Broadcom's market value surpassed $1 trillion last year because it told the grand narrative of AI-specific chips ASICs It is expected that three years later, ASIC and GPU will at least share the market equally, or even replace each other.

Chen Fuyang predicted last December that by the fiscal year 2027, the market demand for ASICs will reach between $60 billion and $90 billion. Analysis states that if this prediction is accurate, Broadcom's ASIC-related AI business is expected to achieve annual growth of doubling in the next three years.

Analysts expect that Broadcom's custom chip business could generate revenue of $25 billion to $30 billion in 2026, and is expected to exceed $40 billion in 2027. This would account for a significant portion of Broadcom's revenue. Broadcom's total revenue for the fiscal year 2024 is nearly $51.6 billion.

In 2023, Broadcom acquired VMware for $61 billion, and this business has now become the core of its infrastructure software division, accounting for 44% of sales in the previous fiscal quarter. The growth of VMware's business is also a key point of interest for investors.

In the third quarter, the revenue growth of the infrastructure software business, including VMware, slowed down, with the year-on-year growth rate dropping from nearly 25% in the previous quarter to 17%, maintaining a share of over 40% in total revenue.

Citigroup analysts recently pointed out that Broadcom's non-AI semiconductor business has declined by about 40% from its peak, accounting for 27% of the expected sales for this fiscal year, and its recovery should offset the gross margin dilution effect brought by the AI business