AVGOBy Calypso Research7 min read

Broadcom Inc. (AVGO) Q3 2025 Earnings Analysis

Broadcom's AI Hype Hits a Bit of a Backlash with 11.4% Drop

Key Takeaways

Broadcom Inc. (AVGO) reported Q3 2025 earnings with revenue of $18.0B, representing a +28.2% year-over-year change. The stock moved -11.4% on earnings day.

The bull case: Explosive, increasingly diversified AI demand across XPUs, networking, and systems, underpinned by a massive and growing backlog plus deep custom-accelerator partnerships, drives sustained high growth and strong cash generation despite some margin dilution.

The bear case: AI-driven mix shift, margin compression from lower-margin systems, potential supply-chain bottlenecks, and a flat non-AI portfolio leave Broadcom over-earning at peak AI capex with elevated execution and competitive risks into the late-2020s.

Financial Highlights

  • Revenue: $18.0B (+28.2% YoY)
  • Gross Profit: $12.2B (68.0% margin, +3.9% YoY)
  • Operating Income: $7.5B (41.7% margin, +8.8% YoY)
  • Net Income: $8.5B
  • TTM Revenue: $63.9B

Stock Performance

  • Earnings Day Move: -11.4%
  • Year-to-Date: -5.0%
  • 1-Year Return: +58.9%
  • vs. S&P 500 (since earnings): +8.1%
  • vs. Nasdaq (since earnings): +6.3%

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What Management Said

Here are the key debates and direct quotes from Broadcom Inc.'s Q3 2025 earnings call:

Durability and Magnitude of AI Backlog & 2026 AI Growth Trajectory

Sentiment: Positive

"as of now, we have $73 billion of backlog in place...that we anticipate shipping over the next eighteen months...we fully expect more bookings to come in over that period of time...do not take that $73 billion as that's the revenue we ship over the next eighteen months." — Hock Tan
"we originally, six months ago said maybe year on year, AI revenues would grow in 2026 sixty, 70%. Q1, we doubled...it's hard for me to pinpoint what 2026 is going to look like precisely...But...is it an accelerating trend? And my answer is it's likely to be an accelerating trend as we progress through 2026." — Hock Tan

Customer-Owned Tooling / Custom Accelerators vs Merchant GPUs & TPUs

Sentiment: Positive

"do not follow what you hear out there as gospel...many of the players...doing LLMs want to do their own custom AI accelerator for very good reasons...you can achieve performance-wise so much better in the custom-purpose design hardware-driven XPU...So I see that as this concept of customer tooling is an overblown hypothesis which frankly I do not think will happen." — Hock Tan
"Moving from GPU to TPU is a transactional move. Going into an AI accelerator of your own is a long-term strategic move and nothing would deter you from there to continue to make that investment...that's the motion we see." — Hock Tan

Gross Margin and Operating Margin Trajectory as AI and System/Rack Sales Scale

Sentiment: Mixed

"we have already started that process of some system sales...The AI revenue has a lower gross margin...But we expect the rate of growth...to be so so much that we get the operating leverage...that operating margin...dollars...are still a high level of growth...even as gross margin will start to deteriorate." — Hock Tan
"in the second half of the year when we do start shipping more systems...we'll be passing through more components that are not ours...those gross margins will be lower...gross margin dollars will go up. Margins will go down. Operating margins...dollars will go up, but the margin itself...will come down a bit." — Kirsten Spears

OpenAI / Fifth XPU Customer, 10GW Agreement and Timing of Revenue Contribution

Sentiment: Positive

"I did not answer it I'm not answering it either. The fifth customer. And he's a real customer and he will grow...As far as the OpenAI view that you have...it is a multiyear journey that will run through '29...10 gigawatts between '26 to more more like '27, 28. 29...We do not expect March in '26." — Hock Tan
"that 10 gigawatt announcement is an agreement to be aligned on developing 10 gigawatts for OpenAI over 27 to 29 time frame...that's different from the XPU program we're developing with them." — Hock Tan

Capacity, Supply Chain Bottlenecks & Advanced Packaging (Singapore Facility, HBM/CoWoS, Substrates)

Sentiment: Positive

"with the strength of the demand and the need for more innovative packaging...The packaging becomes a very interesting and technical challenge. And building our Singapore fab is to really...partially insourcing those advanced packaging...we believe that we have enough demand...from the viewpoint of supply chain security and delivery." — Hock Tan
"we probably have a good handle on where the bottlenecks are because sometimes we are part of the bottlenecks. Which we then want to...resolve. So we feel pretty good about that. Through 2026." — Hock Tan

Bull Case

Explosive, increasingly diversified AI demand across XPUs, networking, and systems, underpinned by a massive and growing backlog plus deep custom-accelerator partnerships, drives sustained high growth and strong cash generation despite some margin dilution.

Bear Case

AI-driven mix shift, margin compression from lower-margin systems, potential supply-chain bottlenecks, and a flat non-AI portfolio leave Broadcom over-earning at peak AI capex with elevated execution and competitive risks into the late-2020s.

Looking Ahead

With revenue growing +28.2% year-over-year, the key question is whether Broadcom Inc. can sustain this growth trajectory, particularly around durability and Magnitude of AI Backlog & 2026 AI Growth Trajectory. With operating margins at 41.7%, margin trends will remain a focal point. The market's negative earnings-day reaction signals that investors need to see stronger execution, and the next earnings report will be a key catalyst for the stock.

Frequently Asked Questions

What was Broadcom Inc.'s revenue in Q3 2025?

Broadcom Inc. reported Q3 2025 revenue of $18.0B, representing a +28.2% year-over-year change.

Did Broadcom Inc. beat earnings expectations in Q3 2025?

The stock declined -11.4% on earnings day, suggesting the results fell short of market expectations. The current bull case centers on: Explosive, increasingly diversified AI demand across XPUs, networking, and systems, underpinned by a massive and growing backlog plus deep custom-accelerator partnerships, drives sustained high growth and strong cash generation despite some margin dilution.

What is the bull case for AVGO stock?

The bull case for AVGO centers on: Explosive, increasingly diversified AI demand across XPUs, networking, and systems, underpinned by a massive and growing backlog plus deep custom-accelerator partnerships, drives sustained high growth and strong cash generation despite some margin dilution.

What is the bear case for AVGO stock?

The bear case for AVGO centers on: AI-driven mix shift, margin compression from lower-margin systems, potential supply-chain bottlenecks, and a flat non-AI portfolio leave Broadcom over-earning at peak AI capex with elevated execution and competitive risks into the late-2020s.

How has AVGO stock performed since its Q3 2025 earnings?

AVGO moved -11.4% on the day of its Q3 2025 earnings report, outperforming the S&P 500 by +8.1% since earnings. Year-to-date, the stock has returned -5.0%.

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