Broadcom Posts Solid Q2, But Hot Streak Meets Cool Reception Amid High Expectations

Broadcom (AVGO) reported its fiscal second-quarter results on Thursday, delivering a clean beat on both revenue and earnings and issuing Q3 guidance that was largely in line with consensus. The headline numbers showed a continuation of strong growth trends—particularly in AI-related semiconductors and software—but the stock slipped over 3% after hours, with some profit-taking emerging following an 84% YTD rally heading into the print. While the numbers reinforced the long-term bull case, the bar was simply too high for a modest beat to fuel further upside in the immediate term.

For Q2, Broadcom posted adjusted earnings per share of $1.58, topping the $1.56 consensus. Revenue came in at $15 billion, also ahead of the $14.95 billion estimate. Adjusted EBITDA hit $10 billion, a 35% year-over-year increase, representing 67% of revenue and exceeding the company’s own guidance. Segment-wise, semiconductor solutions brought in $8.4 billion (+17% YoY), while infrastructure software contributed $6.6 billion (+25% YoY), with both divisions beating StreetAccount estimates. Gross margin expanded year-over-year in both segments, reaching 69% for semiconductors and 93% for software.

The primary growth engine continues to be Broadcom’s AI semiconductor business, which generated $4.4 billion in revenue during the quarter—up 46% year-over-year and accounting for more than half of the semiconductor segment’s total sales. AI networking alone surged by 170%, making up 40% of AI revenue, driven by strong demand for the company’s Tomahawk switches, Jericho routers, and network interface cards (NICs). Notably, CEO Hock Tan emphasized the role of Ethernet as the standard fabric across hyperscale customers building next-generation AI clusters, citing both performance and scalability benefits.

The company guided AI semiconductor revenue to accelerate further in Q3, reaching $5.1 billion, which would represent a 60% year-over-year gain and a 15% sequential increase. Looking further ahead, Tan stated that AI revenue growth is now expected to sustain this 60% pace through fiscal 2025 and 2026. Management believes that the back half of FY26 could even see a steeper ramp in demand, particularly for inference workloads. Custom XPUs (accelerators) remain a core part of this thesis, with Broadcom confirming that it continues to support three active hyperscaler deployments and is in talks with four additional prospects.

Beyond AI, Broadcom’s infrastructure software segment—now fully incorporating VMware—continued to perform ahead of expectations. Q2 revenue of $6.6 billion represented a 25% year-over-year increase, with management citing strong traction converting customers from perpetual vSphere licenses to full-stack VCF subscriptions. More than 87% of the company’s top 10,000 customers have now adopted VCF, helping drive double-digit growth in annual recurring revenue. Broadcom sees software revenue increasing to $6.7 billion in Q3, up 16% year-over-year.

On the guidance front, Broadcom projected Q3 consolidated revenue of $15.8 billion (versus consensus at $15.75 billion) and adjusted EBITDA margin of at least 66% (compared to 66.7% consensus). The forecast reflects strength in AI offset slightly by margin headwinds from product mix, as custom XPU deployments—which carry lower gross margins—continue to scale. Non-AI semiconductor revenue is expected to hold steady at $4 billion, with enterprise networking and broadband showing some sequential growth, but wireless and industrial segments remaining weak.

Despite the solid quarter and aggressive AI outlook, the market reaction was muted. Analysts noted that while the quarter delivered on expectations, investors had come to expect a larger “wow” factor from Broadcom after its meteoric rise. Truist said the results were “very modest upside” but reiterated its Buy rating, citing continued AI momentum and VMware synergies. Deutsche Bank bumped its price target to $270, citing greater confidence in sustained AI demand and margin stability. Cantor Fitzgerald went further, suggesting that AVGO’s AI business could surpass $20 billion in revenue in FY25 and $30 billion in FY26, well above consensus forecasts.

Going forward, the key investor focus will remain on AI-related growth—both in networking and custom silicon—and the timing of deployment ramps from Broadcom’s hyperscaler partners. Analysts will also be watching for updates on new customer wins in the XPU segment, which management hinted could number as many as seven in the near term. Another major catalyst will be the company’s ability to maintain its margin profile as mix shifts more heavily toward lower-margin custom accelerators.

On the macro side, questions linger around broader semiconductor demand outside of AI, with non-AI revenues still in a trough and largely flat sequentially. While management is signaling stabilization, investors will look for signs of a cyclical recovery, particularly in industrial and wireless.

In short, Broadcom remains a dominant player at the intersection of AI and cloud infrastructure, with robust free cash flow, a disciplined capital return strategy, and a sticky enterprise software footprint. The Q2 report confirmed all of that. But in a market priced for perfection, solid execution isn’t always enough to extend a rally—especially when the stock has already climbed nearly 85% YTD. For long-term investors, however, the path remains upward, built on silicon, software, and a swelling AI wave.