Broadcom (AVGO) Q1 FY26 earnings call: guidance and Q&A

Clarification on the $100B+ AI chips revenue (ASICs vs. networking) and management's perspective on investor pessimism regarding hyperscaler ROI given the rapid growth.

Hock Tan clarified that the $100B+ AI revenue refers to silicon content (XPUs, switch chips, DSPs). He explained that demand is driven by a few strategic customers (hyperscalers and LLM developers) creating platforms, with increasing need for compute capacity for both training and inference. He emphasized that these customers are creating custom accelerators and networking architectures, leading to sustained demand.

“I'm focusing on the fact that these are pretty much all based on chips, whether they are XPUs, whether they are switch chips, DSPs, these are silicon content we're talking about.”

asked by Blayne Curtis · answered by Hock Tan

Inquiring if COT initiatives by CSPs/hyperscalers pose a threat to Broadcom's TPU/XPU share, and how Broadcom plans to widen its performance/complexity gap.

Hock Tan stated that COT initiatives face tremendous challenges in technology, silicon design, SerDes, advanced packaging, and networking. He believes Broadcom is far ahead and will not see significant COT competition for many years due to its expertise in high-volume production with high yields. Charlie Kawwas added that deep, multi-year engagements with customers provide visibility for securing capacity and technology.

“We will not see competition in COT for many years to come. It will come eventually, but we're still a long way off because the race which we see continues.”

asked by Harlan Sur · answered by Hock Tan

Asking about the drivers for networking becoming 40% of AI revenues, its long-term mix in the $100B+ target, and if networking leadership aids XPU optimization.

Hock Tan explained that the Tomahawk 6 switch (100 terabit/sec) and 200G SerDes are driving demand due to their market leadership and bandwidth. He expects AI networking to range between 33% to 40% of total AI revenue. He confirmed that networking leadership helps XPU optimization, especially with direct attached copper for scale-up, which offers lower latency, power, and cost.

“I expect as a composition of our total AI revenue in any quarter that will be ranging between probably 33% to 40% AI networking components.”

asked by Ross Seymore · answered by Hock Tan

Questioning the potential for gross margin dilution (estimated 500bps) as Broadcom begins shipping racks, and if there's a floor to acceptable gross margins.

Hock Tan and Kirsten Spears clarified that gross margins will not be significantly affected by increased AI product shipments, including racks. They stated that yields and costs are optimized, and the AI model's profitability is consistent with the rest of the semiconductor business. Kirsten added that the impact on overall mix will not be substantial.

“Our gross margin is solidly at the number Kirsten report. We will not be affected by the gross margin and by more and more AI products going out.”

asked by Timothy Arcuri · answered by Hock Tan

Asking for clarification on the gigawatt figures for 2027 AI XPU shipments, specifically if his calculation of ~9 gigawatts is correct and how content per gigawatt contributes to the "substantially more than $100 billion" target.

Hock Tan confirmed that Stacy's gigawatt calculation is in the right ballpark, stating that the company is seeing it 'getting close to 10 gigawatts' for 2027. He acknowledged that dollars per gigawatt vary by customer but are not far from the analyst's estimate, supporting the strong revenue projection.

“And if you look at it by gigawatt in '27, we are seeing it getting close to 10 gigawatts.”

asked by Stacy Rasgon · answered by Hock Tan

Inquiring how Broadcom secured supply chain visibility through 2028, and if this visibility supports continued growth in 2028.

Hock Tan stated that Broadcom anticipated the accelerated growth early and locked up key components like T-glass and substrates through good partnerships. Charlie Kawwas added that deep, multi-year engagements with 6 strategic customers provide visibility into their anticipated needs for 2-4 years, enabling proactive investment in capacity and technology. Both confirmed that the secured supply supports growth in 2028.

“We were early in being able to lock up T-glass. It's the infamous T-glass you all heard about. We were very early. We've locked up substrates.”

asked by Benjamin Reitzes · answered by Hock Tan

Clarification on the Anthropic project's composition (chips vs. racks) and how Broadcom maintains visibility and market share confidence with multiple customers and suppliers.

Hock Tan declined to specify the chips vs. racks split for Anthropic but reiterated confidence in margins. He explained that Broadcom's 6 customers view custom silicon as a strategic, not optional, play for their LLM development and monetization. This strategic alignment provides clear visibility into their multi-year roadmaps, unlike transactional GPU or cloud engagements.

“To them, long term, short term, medium term is strategic, extremely strategic. They don't stop and they are very clear, each of them, on where they want to position this custom silicon within the trajectory of the LLM development and the trajectory of how they develop inference for productizing those LLM.”

asked by Vivek Arya · answered by Hock Tan