Broadcom Secures $10B AI Chip Order, Lifts Outlook as Shares Hit Record Highs

Broadcom’s latest quarter delivered exactly what bulls wanted to see: a clean beat, a higher guide, and—most importantly—evidence that its custom AI accelerator (XPU) strategy is converting marquee prospects into paying customers. Revenue rose 22% to $15.95 billion and adjusted EPS hit $1.69, as AI semiconductors and VMware did the heavy lifting. Management also revealed a new $10 billion production order from a fourth XPU customer, boosting confidence in a steeper AI ramp from fiscal 2026. With shares breaking out to all-time highs, the market is voting that Broadcom’s AI plus networking plus software formula isn’t just resilient—it’s compounding.

On the scorecard versus expectations, Broadcom’s headline numbers cleared the bar: revenue of $15.952 billion beat the $15.826 billion consensus, while adjusted EPS of $1.69 topped $1.65–$1.66. Adjusted EBITDA landed at $10.7 billion (67% margin), a touch ahead of the 66% guide. Segment-wise, Semiconductor Solutions rose to $9.2 billion, powered by AI; Infrastructure Software climbed to $6.8–$6.79 billion, aided by VMware Cloud Foundation momentum. AI semiconductor revenue jumped 63% year over year to $5.2 billion, edging past management’s $5.1 billion indication. For the October quarter (FQ4), Broadcom guided revenue to about $17.4 billion (vs. Street ~$17.0 billion), with AI semiconductor revenue expected to accelerate to $6.2 billion—eleven straight quarters of AI growth. Gross margin was 78.4% in Q3, with CFO commentary pointing to a modest sequential step down in Q4 on mix (more XPUs and seasonal wireless).

The key drivers were straightforward and highly aligned with the thesis. First, custom AI accelerators: Broadcom is gaining wallet share by co-designing silicon that maps precisely to hyperscale workloads, compressing the distance from “prospect” to “revenue.” Second, networking: with Tomahawk 5/6 switches and the Jericho4 fabric router, Broadcom is positioned on the chokepoint to larger AI clusters—latency, scale, and power are the gating factors, and Ethernet’s ecosystem maturity is a tailwind. Third, VMware: VCF 9.0 is building a bridge for enterprise customers into containerized, on-prem AI, creating cross-currents that support software mix and gross margin. The $110 billion consolidated backlog—heavily AI-skewed, per management—underpins visibility.

Outlook tightened—and improved—where it matters. For FQ4, management sees ~$17.4 billion revenue, with semis at about $10.7 billion (AI at $6.2 billion) and infrastructure software around $6.7 billion, up mid-teens year over year but roughly flat to down 1% sequentially as customers digest VCF 9.0. Non-AI semis are stabilizing with a low double-digit sequential uplift to roughly $4.6 billion, but management still isn’t calling a V-shaped recovery. The bigger swing factor is fiscal 2026: the addition of a fourth qualified XPU customer, now placing production orders, “significantly” lifts the company’s AI revenue outlook versus last quarter’s +60% view. Several sell-side shops quickly moved price targets to $382–$400 and raised FY26 AI revenue trajectories; a few also flagged CEO Hock Tan’s commitment through 2030 as a useful de-risking of the playbook.

About that “secret” $10 billion AI order: Broadcom confirmed the size and timing (deliveries concentrated in 2H FY26) but not the name. Multiple reports and analyst notes point to OpenAI as the likely customer, consistent with prior press around a Broadcom collaboration to diversify beyond merchant GPUs. What’s notable isn’t just the dollar figure; it’s the cadence. Moving from prospect to qualified customer with a multi-billion-dollar production order in this timeframe is unusually fast for a custom silicon program, and it strengthens the case that Broadcom can convert its remaining XPU prospects into revenue over the next 12–24 months. It also validates the thesis that the AI value chain is bifurcating: merchant GPU for speed to market, custom silicon for cost/performance at hyperscale.

Implications for Nvidia are nuanced. Near term, Broadcom’s win doesn’t change Nvidia’s 2025–26 dominance; Nvidia just guided to ~$7 billion of sequential revenue growth—more than Broadcom’s entire quarterly AI revenue—with 3–4x the networking scale, per Morgan Stanley’s framing. The takeaway is less “share loss today” and more “incremental TAM plus selective substitution tomorrow.” If OpenAI and peers optimize a portion of inference or specialized training with custom XPUs, Nvidia’s mix might shift at the margins even as the overall pie grows. And because Broadcom also supplies the networking plumbing that stitches GPU clusters together, it participates in Nvidia’s ecosystem even when it competes at the accelerator layer. The risk to Broadcom is the flip side of the opportunity: multi-sourcing remains the norm, ASIC schedules slip, and export controls can whipsaw plans. But if even 80% of the management narrative proves out, the math is compelling.

Financially, Broadcom continues to print cash and scale profitably. Q3 operating income was $10.5 billion; free cash flow was $7 billion (44% of revenue). The dividend machine keeps humming ($0.59 per share this quarter), inventories are being built prudently ahead of ramps, and liquidity remains ample ($10.7 billion cash vs. $66.3 billion gross debt). Mix will tug gross margin down slightly in Q4, but operating leverage is intact given the software contribution and the structurally high XPU content.

What to watch next: (1) firming signals on the fourth XPU customer’s platform milestones and any color on the remaining prospects; (2) networking product adoption as cluster sizes scale and Ethernet vies for more AI spine and leaf sockets; (3) VMware monetization as enterprises roll to VCF 9.0 and pilot private-cloud AI; (4) the non-AI semi read-through into 2025—steady is fine, acceleration would be upside. With shares at all-time highs, the debate will center on how steep the FY26–27 AI slope gets and whether execution keeps pace with expectations.

Bottom line: Broadcom just delivered a beat-and-raise anchored by AI and VMware, paired with a catalytic $10 billion XPU order that upgrades the medium-term growth arc. Nvidia’s fortress isn’t crumbling, but the map is changing at the edges, and Broadcom is drawing several of the new lines. For now, the tape agrees.