Third-quarter revenue grew 86% to $29.6bn ($29.4bn expected), driven by strong semiconductor performance up 127%.
Underlying operating profit rose 92% to $20.1bn ($19.7bn expected).
Free cash flow rose 95% to $13.7bn, driven by the improved profitability. Net debt stood at $35.4bn at the end of the period, and a quarterly dividend of $0.65 per share has been approved.
Fourth-quarter revenue is expected to grow by around 93% to $34.8bn ($34.9bn expected), with an underlying operating profit margin of 66%. 2027 AI revenues are now expected around $115bn (previously $100bn).
The shares were broadly flat in after-hours trading.
Our view
Another quarter, another set of very strong numbers, and once again high expectations were met rather than blown away. Revenue and earnings came in ahead, AI chip sales more than tripled year on year, and fourth-quarter guidance points to more of the same. The bigger story was the outlook for 2027 and 2028, where management now sees AI sales doubling in each year. On our modelling, that means 2028 consensus revenue forecasts need to rise by something in the region of $30-40bn. That should be taken positively.
Broadcom builds the essential chips and connectivity technology that move data around the world’s phones, networks, and data centres - helping power the digital infrastructure behind modern cloud, communications, and AI systems.
AI has quickly become the growth engine, with Broadcom taking a different approach from peers that design general-purpose chips sold off the shelf to run a wide range of AI workloads. Instead, Broadcom works with large tech customers to build custom chips tailored to their needs.
In these partnerships, the customer often leads the chip’s architecture, with Broadcom helping turn that design into a high-performance, manufacturable product and providing the networking technology that links thousands of chips together.
There's a raging debate about which approach wins. Nvidia has a massive scale advantage, but Broadcom's custom chips are gaining serious traction, and we think there's room for both as the market expands.
More recently, we’ve seen customer concentration become a talking point. Alphabet has been the anchor customer but is expanding its chip programme beyond Broadcom. We still expect them to remain a major buyer, but Anthropic and OpenAI (AI labs) are likely to drive more of the growth from here. That’s both a benefit and a risk.
The financials are strong. There's still a chunk of debt on the balance sheet from the VMware acquisition, but $5.6bn was paid down this quarter alone, and net debt is falling fast. If the expected monster revenue growth can be delivered, we forecast exceptional cash flows ahead.
We see two key catalysts from here. The first centres on expectations, where we think the market underappreciates the financial picture from 2028. The second is on the earnings multiple, which we don’t think fully reflects the durability and quality of this earnings growth.
The risks are equally clear. The AI buildout must continue, and the AI labs need to succeed to make that happen. Then there’s the reverse of the first catalyst. Near-term expectations look a little high, and that could put pressure on the next few sets of results.
Environmental, social and governance (ESG) risk
The semiconductor sector is medium-risk in terms of ESG. Overall, this risk is managed adequately in Europe and North America but has considerable room for improvement in the Asia-Pacific region. Its reliance on highly specialised workers means that labour relations is one of the key risk drivers. Other risks worth monitoring include resource use, business ethics, product governance, and carbon emissions.
According to Sustainalytics, Broadcom’s management of material ESG risks is strong.
Broadcom has no significant ongoing risk events. There is an ESG committee in place to oversee relevant issues, which is aligned with the Global Reporting Initiative standards. The 2024 responsibility report doesn’t clearly state whether it has a full diversity plan or a programme to monitor any gender pay gap, two elements that were covered in earlier reports.
The author holds shares in Broadcom.
Broadcom key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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