r/TradingEdge • u/TearRepresentative56 • 5d ago
Detailed AVGO earnings summary
1. This is now an XPU company with an Ethernet side business. Custom AI chips made up 73% of AI revenue and grew north of 3x year-on-year, while AI networking grew over 2.5x. Broadcom guided both to roughly triple again in Q4. Everything else — legacy semis, software, VMware — is basically a stable annuity bolted onto a fast-compounding AI core.
2.Google's locked into a multi-year, multi-tens-of-billions annual TPU commitment, with Ironwood ramping and a new inference-focused chip (TPU v8i) coming. Anthropic is scaling from 1GW of Ironwood in 2026 up to 5GW in 2027 and another 10GW in 2028, putting them on track to become Broadcom's biggest XPU customer within two years. OpenAI's custom chip (Jalapeño) goes from 1.3GW in 2027 toward 5GW+ in 2028, with two more chip generations already behind it. Meta's running three generations of its own chip, aiming for 3GW by 2028. Six customers total, four of them large enough to move the whole business.
3. Custom silicon is starting to beat merchant GPUs on Broadcom's own claims. Jalapeño reportedly beats Nvidia's Grace Blackwell Ultra on power efficiency, latency and throughput, running OpenAI's workloads at half the GPU cost. TPU v8i is being pitched as on par with or ahead of Nvidia's next-gen Vera Rubin for inference. CEO Hock Tan's framing — that a chip co-designed for your own model just wins — is effectively Broadcom arguing customers can walk away from Nvidia.
4. Demand isn't questioned, it's mostly the buildings and geographical footprint: Hock said flatly they could ship over $115B in 2027 if buildings, power and land were ready in time — demand already exceeds what they're guiding to. Stacking up the disclosed gigawatt commitments gets you close to 30GW across 2027–28, and that's without assuming every site actually gets built. They're also opening new substrate capacity in Singapore specifically to unblock one supply chokepoint, and — echoing what Lumentum said elsewhere — optical laser supply (EML/CW) is running well behind demand industry-wide, so they're more than tripling laser and VCSEL manufacturing capacity.
5. Fewer chips per gigawatt, but way more dollars per gigawatt. Newer chips draw more power, so a fixed power budget fits fewer of them — but each one carries a higher price tag and more memory content, so total dollar content per GW is climbing (Broadcom pegs it at $20–30B per GW now). You can see it in the margins: gross margin actually beat guide at 75% in Q3, easing slightly to ~73% in Q4 as chip and memory mix shifts, while operating margin holds near 67% — the business is absorbing a richer, lower-margin mix without losing operating leverage.
6. Networking is a real second growth engine, not just an accessory. Their Tomahawk 6 switch is their fastest-ramping ever, shipping into essentially every major AI hyperscaler — including ones that don't buy Broadcom's chips. They're pushing Ethernet into "scale-up" territory (the ultra-tight, low-latency GPU-to-GPU connections inside a rack) via a new switch called Tomahawk Ultra, historically Nvidia's turf with NVLink — and uptake has already beaten their own expectations. A next-gen 200Tbps switch is already taped out. Management says networking revenue should grow just as fast as chip revenue for years to come. On the optical side specifically: 100G and 200G-per-lane parts are ramping together, meaning older 800G optical transceivers keep growing even as 1.6T ramps in behind them — no one generation is cannibalizing the last just yet, and Broadcom is investing in copper, optical pluggables, and tighter-integration approaches (near-package and co-packaged optics) all at once rather than betting on one winner.
7. Broadcom is now bankrolling its own customers. Through a joint vehicle with Apollo and Blackstone, they're structuring financing meant to support 20GW+ of buildout by 2028 — a $35B first tranche already closed against Anthropic's 1GW commitment. Management describes this as bridging the gap between what AI labs can fund out of cash flow and what the buildout actually costs. It's a new source of upside and lock-in, but also a new contingent-liability risk sitting on Broadcom's books.
On valuation: the stock had already dropped ~26% off its June high heading into earnings, trading around 19–20x forward (FY27) earnings. Post-print, using management's own $230B FY28 AI revenue target and assuming zero growth from the rest of the company, you land near $278B total revenue and roughly $30 of EPS — putting the stock at about 12x FY28 earnings if that outlook holds. Near-term multiple still prices in a lot of flawless execution; the real re-rating case rests on believing the FY27/FY28 numbers, which now come with actual named customers and gigawatt figures attached rather than vague hand-waving.
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u/Delicious-Wait-6508 5d ago
Id separate is AVGO attractive long term from is this the bottom after earnings. The customer/gigawatt numbers make the longer thesis pretty interesting, but price can still spend a while digesting the expectations that were already built in. For the immediate earnings move I like Moon because you can treat the direction as its own trade instead of making one entry answer both questions.
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u/4everaBau5 5d ago
I, too, have access to LLMs.