Broadcom's Q3, which ended in early August, finished with impressive results. Adjusted EPS rose 36% to $1.69, slightly beating thevWall Street consensus. Adjusted EBITDA jumped 30% to $10.7bn, reflecting remarkable operational leverage. Revenues reached $15.95bn, up 22% y-o-y, a record for this period. As a sign of strength, the adjusted EBITDA margin is now close to 67%. In other words, two out of every three dollars generated by Broadcom are converted into operating profits, a remarkable feat in such a capital-intensive industry.
Artificial intelligence, the engine of growth
The real star of the publication remains the artificial intelligence business. AI revenues soared 63% y-o-y to $5.2bn, accounting for nearly a third of total sales. Management is already anticipating $6.2bn for Q4, a figure that would represent an acceleration to 66% annual growth.
The secret to this performance lies in XPUs, custom AI accelerators designed by Broadcom for cloud giants. Three long-standing customers, including Google (Alphabet), have been joined by a fourth player that has signed up for more than $10bn in orders through 2026. The company's total order backlog has reached a staggering $110bn.
A credible alternative to Nvidia
While Nvidia continues to dominate the GPU market, Broadcom is gradually establishing itself as the alternative for hyperscalers looking for tailor-made solutions. XPUs offer increased efficiency in targeted tasks, while network innovations (with the new-generation Tomahawk Ultra and Jericho chips) optimize power consumption and reduce latency.
Hock Tan, the charismatic 73-year-old CEO, is a strong advocate of the superiority of Ethernet, an open and universal protocol, over proprietary solutions such as NVLink. In his view, its openness and mastery by network engineers make it an essential standard for connecting massive clusters of AI processors.
Headwinds outside AI
However, not everything is rosy. The company reported some weakness in its non-AI semiconductor business, particularly in the enterprise networking and storage segments, which saw a slight sequential decline. The group also remains exposed to the structural challenge of time-to-market: it can take more than a year between the design and delivery of complete solutions by customers. This lag can weigh on short-term momentum. On the software side, however, the integration of VMware, which was finalized in November 2023, continues to bear fruit. Software revenue jumped from $7.6bn to $21.5bn in one year, making Broadcom a comprehensive platform combining semiconductors and infrastructure software.
An ambitious but risky vision
Investors welcomed the announcement: the stock gained 5% after the announcement, bringing its annual increase to more than 35%. Over the past two years, the stock has tripled in value, illustrating the enthusiasm for Hock Tan's strategy. Tan has announced that he intends to remain at the helm of the company for at least another five years, a reassuring prospect for the market.
But some observers remain cautious. Betting on AI ASICs over Nvidia GPUs assumes that artificial intelligence models will become more concentrated and stable, so that customized solutions become profitable. However, the ecosystem is evolving rapidly, and ASICs are starting from a much weaker installed base.
Broadcom could be a game changer
Broadcom's announcement confirms the company as one of the few players capable of standing up to Nvidia in the race for artificial intelligence. With its XPUs and integrated network solutions, it offers an alternative vision: that of customized, optimized, and scalable AI for the hyperscalers that dominate the digital economy. Broadcom remains a solid growth stock, buoyed by a colossal $110bn order book and exemplary execution. But there are some areas of concern to bear in mind: dependence on four large customers, the risk of overestimating the rise of ASICs, and the fragility of non-AI segments.
