Broadcom reported fiscal third-quarter revenue of $29.6 billion, up 86% from a year earlier, alongside adjusted earnings of $3.32 per share, comfortably beating Wall Street's expectations, yet shares still fell as investors focused on softer profit margins ahead.
AI Now Drives Most Of The Business
The company's AI semiconductor revenue reached $16.7 billion for the quarter, up 221% from a year earlier and now accounting for 56% of Broadcom's total revenue, fueled by relentless demand from hyperscalers for custom AI chips and networking gear. The results echoed similarly blowout quarters recently posted by AI infrastructure peers Dell and Nvidia.
Why The Stock Fell Anyway
Despite the headline beat, Broadcom's gross margin dropped 210 basis points from the prior quarter, and the company guided next quarter's consolidated gross margin down to 73%, from 78% a year earlier, a shift executives attributed to custom accelerators and high-bandwidth memory making up a growing share of revenue. Broadcom's current-quarter revenue guidance of $34.8 billion also came in just below analyst consensus, adding to investor caution.
A Massive Hyperscaler Backlog
Broadcom pointed to a two-year hyperscaler order book worth roughly $350 billion as evidence that AI chip demand remains robust well into the future, with fourth-quarter AI semiconductor revenue guided to climb a further 236% year over year to $21.7 billion. Analysts said the sheer size of that backlog underscores how deeply embedded Broadcom has become in the AI buildout, even if near-term profitability metrics look less clean than investors would like.
What Comes Next
Chief Executive Hock Tan is scheduled to speak at the Goldman Sachs Communicopia and Technology Conference on September 8, where he is expected to face further questions about the company's margin trajectory. Broadcom's next full earnings report is set for December 9, giving investors a few months to judge whether the current margin compression is temporary or a lasting feature of its custom-silicon business.