Analytical review · Quarter ended August 2, 2026 (Q3 of fiscal year 2026)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. Broadcom's Form 10-Q for the quarter ended August 2, 2026, filed September 10, 2026; the 10-Qs for Q1 and Q2; the Form 10-K for fiscal 2025; the quarterly earnings releases from December 2025 to September 2026; and Form 8-K filings on the Google and Apple agreements, the CFO change and the company's notes. Broadcom's fiscal year ends in early November. Market data: closing price on Oct 5, 2026, and the Bank of Israel representative USD rate for that day.
Broadcom Inc. operates in two segments. The semiconductor segment designs custom AI accelerators for specific customers (XPUs), switching and networking chips for data centers, communications, wireless and storage chips, and in some cases complete racks. The infrastructure software segment, built mainly on the November 2023 acquisition of VMware, sells private-cloud software (VMware Cloud Foundation), mainframe software and security software. Headquarters are in Palo Alto, California. Manufacturing is largely outsourced.
Revenue for the 12 months ended August 2026 was $89.1 billion. In the latest quarter semiconductors were 70% of revenue, vs 57.5% a year earlier. According to the CEO, $16.7 billion of the quarter's revenue came from AI semiconductors. The company publishes this figure only in its earnings release, not in the audited filing.
The CEO is Hock E. Tan. On June 12, 2026, Amie Thuener, formerly Chief Accounting Officer of Alphabet, succeeded Kirsten Spears as CFO. Broadcom has no controlling shareholder and a single class of shares.
In the May–July 2026 quarter revenue rose 85.5% to $29.6 billion. Growth accelerated through the year: 29.5%, 47.9% and 85.5% in the three quarters, each above the company's own guidance. GAAP operating income rose 2.7-fold to $16.0 billion; net income rose 3.2-fold to $13.1 billion, or $2.68 per share. On the company's adjusted (non-GAAP) measure, which excludes acquisition amortization and stock-based compensation, EPS was $3.32 (+96%).
Non-AI semiconductor revenue was about $4.1–4.2 billion in each of the three quarters. In other words, almost all semiconductor growth came from AI accelerators and AI networking.
What needs to be normalized in software: starting this quarter Broadcom separately presents "upfront license revenue". These are contracts in which the customer has no termination-for-convenience right, so the license component is recognized in full on delivery rather than over the contract term. This component was $3.5 billion in the quarter, vs $1.9 billion a year earlier. Reported software revenue grew 29%; excluding this component, growth was about 8.6% (our calculation). According to the filing, most new software contracts no longer include a termination-for-convenience right.
What needs to be normalized in annual earnings: Q4 of fiscal 2025 included a $1.6 billion tax benefit, so the tax rate on trailing-12-month earnings was only 5.4%. At the 16% rate the company itself applies in its adjusted measure, trailing net income would be about $34.0 billion, not $38.3 billion.
| $ millions | Q3 FY25 | Q4 FY25 | Q1 FY26 | Q2 FY26 | Q3 FY26 |
|---|---|---|---|---|---|
| Revenue | 15,952 | 18,015 | 19,311 | 22,187 | 29,591 |
| Semiconductors | 9,166 | 11,072 | 12,515 | 15,009 | 20,839 |
| Infrastructure software | 6,786 | 6,943 | 6,796 | 7,178 | 8,752 |
| Gross margin (non-GAAP) | 78.4% | 77.9% | 77.0% | 77.1% | 75.0% |
| Operating margin (non-GAAP) | 65.5% | 66.2% | 66.4% | 67.3% | 67.9% |
| Net income (GAAP) | 4,140 | 8,518 | 7,349 | 9,310 | 13,088 |
| Free cash flow | 7,024 | 7,466 | 8,010 | 10,262 | 13,665 |
| Stock-based compensation | 2,322 | 2,195 | 2,176 | 2,092 | 2,019 |
In fiscal 2021–2025 revenue grew from $27.5 billion to $63.9 billion. Much of the 2024 jump came from the VMware acquisition rather than internal growth. Free cash flow rose over the same years from $13.3 billion to $26.9 billion. Fiscal 2026 growth is organic: there were no material acquisitions. Adjusted operating expenses fell to 7.1% of revenue, vs 12.8% a year earlier, partly because of the headcount reduction the filing mentions.
| Fiscal year, $ billions | 2021 | 2022 | 2023 | 2024 | 2025 | TTM to Aug 2026 |
|---|---|---|---|---|---|---|
| Revenue | 27.5 | 33.2 | 35.8 | 51.6* | 63.9 | 89.1 |
| Net income (GAAP) | 6.7 | 11.5 | 14.1 | 5.9* | 23.1** | 38.3** |
| Free cash flow | 13.3 | 16.3 | 17.6 | 19.4 | 26.9 | 39.4 |
| Stock-based compensation | 1.7 | 1.5 | 2.2 | 5.7 | 7.6 | 8.5 |
* Includes VMware from November 2023, including amortization and merger costs. ** Includes the tax benefit in Q4 of fiscal 2025.
On August 2, 2026, Broadcom held $24.0 billion in cash against financial debt of $59.4 billion ($61.1 billion principal). Net debt was $35.4 billion. Over nine months the company issued $4.5 billion of notes and repaid or repurchased $10.5 billion. A $7.5 billion credit facility was undrawn. There are no material maturities until fiscal 2028. Goodwill and intangible assets, mainly from VMware, totaled $124.1 billion, more than total equity ($99.7 billion).
Capital return: over nine months the company paid $9.3 billion in dividends ($0.65 per share per quarter) and repurchased 25 million shares for $8.5 billion. Almost all of the buyback was in Q1 ($7.9 billion); Q2 was $0.6 billion and there were no repurchases in Q3. Shares outstanding rose 0.7% over nine months. Since fiscal 2026 the company covers employees' withholding taxes on vested shares by selling a portion of those shares, rather than paying cash.
Working capital: receivables nearly doubled from November 2025, to $13.7 billion. Days sales outstanding rose from about 36 to about 42 (our calculation). Inventory rose from $2.3 billion to $4.5 billion; according to the filing, to support the higher shipment volumes the company anticipates for AI products. In the quarter the company sold $1.6 billion of receivables to financial institutions (factoring); the proceeds are included in operating cash flow.
Broadcom reports two segments. Stock-based compensation, acquisition amortization and restructuring costs are not allocated to segments, so segment margins are higher than company margins.
| Q3, $ millions | Revenue FY25 | Revenue FY26 | Change | Segment margin FY25 | Segment margin FY26 |
|---|---|---|---|---|---|
| Semiconductors | 9,166 | 20,839 | +127% | 56.9% | 61.3% |
| Infrastructure software | 6,786 | 8,752 | +29% | 77.2% | 83.7% |
| Unallocated expenses | — | — | — | (4,568) | (4,140) |
Semiconductors: the segment's gross margin barely changed: 66.9%, vs 67.4% a year earlier. The decline in the company's overall gross margin comes mainly from mix, because semiconductors, which carry lower margins than software, grew faster. Segment profit rose from 56.9% to 61.3% of revenue. According to the risk factors, selling or leasing complete racks may raise operating margin while compressing gross margin.
Software: segment profit rose to 83.7% of revenue. Upfront license revenue carries almost no cost, so its growth lifts margins. Segment R&D and SG&A fell 13% and 18%.
Concentration: one distributor, a direct customer of the semiconductor segment, accounted for 50% of revenue in the quarter, vs 32% in fiscal 2025. By the company's estimate, the top five end customers accounted for about 55% of revenue in the quarter, vs about 40% a year earlier. 70.8% of revenue was shipped to Asia-Pacific; this reflects shipment location, not customer location.
Broadcom designs accelerators to the order of a specific customer, which is different from selling a general-purpose processor to the whole market. Alongside the accelerators it supplies the networking chips that connect them in large data centers. Over the past year the company signed several long-term agreements, disclosed in Form 8-K filings:
Where the filings show pressure: in the risk factors the company writes that its largest customers, including AI customers, demand more favorable pricing and contract terms. Some seek to lease accelerators or racks instead of buying them, or to defer payment. Customers can also design chips themselves. The risk of a customer or supplier being designated a "supply chain risk" by the government has appeared in the filings since Q1 of fiscal 2026. This review does not include primary-source competitor data.
At Broadcom, the central question is not whether there is demand, but who is financing it. The quarter's growth is documented in the filings: revenue +85.5%, adjusted operating income +92%, $13.7 billion of free cash flow in a single quarter. In the same filing, management describes a situation in which leading customers lack the cash flow to fund the infrastructure they order, and Broadcom steps into the gap with guarantees. A reader of the income statement alone and a reader of the commitments note will get two different pictures of the same quarter.
Growth is concentrated. Almost all semiconductor growth came from AI, and other semiconductors are flat. One distributor is half of revenue, and five end customers are more than half. Concentration of this kind is typical of the custom-accelerator market, where a few customers order in large volumes. The implication is that each quarter's results depend on decisions by very few entities.
The RPO: large, but lengthening. $179.2 billion of committed contracts is more than twice trailing-12-month revenue. But the portion recognized within a year fell from 30% to 25%, and in dollars from about $49.4 billion to about $44.8 billion. In other words, the Q3 increase was concentrated in later years. The filing itself cautions that RPO is not necessarily indicative of future revenue.
From vendor to financing party. The XPV platform is presented in the filing as a bridge between frontier AI labs' current cash flow and the investments required. In practice Broadcom backstops one customer's leases for up to $29 billion and may receive convertible notes from it of up to $42 billion. The exposures may overlap, because the note proceeds are designated for the lease payments the backstop covers. Management assesses the probability of payment as low. The agreements were not filed, so the actual exposure is hard to measure from the outside.
Purchase commitments are the other side of the same equation. $126.8 billion of unconditional purchases for 2027–2028 allow the company to fulfil orders. If demand materializes as planned, these are the inventory and components of future revenue. If a large customer defers deployment, the obligation to buy remains. The filing does not say whether the commitments are matched by binding customer orders.
Two kinds of margin, two trends. Adjusted gross margin fell from 79.4% to 75.0% over five quarters. Adjusted operating margin rose to a record 67.9%. According to company management, Q4 operating margin will be about 66%. Management describes this as a deliberate trade-off: racks and AI products carry lower gross margins but require little operating expense.
Software: normalize before comparing. 29% growth in software reads like acceleration. But most of it comes from earlier recognition of licenses, after the company removed termination rights from most new contracts. Without that component, growth was about 8.6%. That is still positive, but different from the reported figure.
Earnings and employee compensation. Stock-based compensation was 9.5% of revenue over the trailing 12 months, but only 6.8% in the latest quarter, because revenue grew faster. The company's adjusted measure excludes it. Buybacks stopped in Q3, and the share count rose slightly. The company also stopped reporting "adjusted EBITDA" in the Q3 earnings release, after the new CFO joined, and moved to guiding on operating income.
Historical anchor. Market value to free cash flow at fiscal year-end 2021–2023 ranged from 12 to 20. In 2024 and 2025 it was 41 and 65. On Oct 5, 2026 it was about 44, on a trailing 12 months that include only one quarter at the Q3 pace. Free cash flow yield on market value was about 2.3%, and about 1.8% after deducting stock-based compensation. These figures describe the starting point; they do not set the direction.
This framework is intended to structure analysis, not to produce an investment conclusion. It does not take part in the decision — the decision is the reader's.
| # | Item | Latest reading |
|---|---|---|
| 1 | AI semiconductor revenue vs management guidance | $16.7 billion; Q4 guidance: $21.7 billion |
| 2 | Gross and operating margin (adjusted) | 75.0% and 67.9%; Q4 guidance: operating ~66% |
| 3 | Actual backstop balance, and any payments | Cap ~$29 billion; nothing paid |
| 4 | Convertible notes issued to the company | None, of up to $42 billion |
| 5 | RPO, total and within 12 months | $179.2 billion; ~$44.8 billion |
| 6 | Purchase commitments | $126.8 billion |
| 7 | Software excluding upfront license revenue | ~$5.3 billion in the quarter (+8.6%) |
| 8 | Concentration: one distributor and five customers | 50% and 55% |
| 9 | Buybacks and share count | None in Q3; 4,774 million shares |
| 10 | Days sales outstanding and factoring | ~42 days; $1.6 billion in the quarter |
The scenarios below are descriptive, not predictive. They contain no prices, no probabilities, and do not rank outcomes. Their only purpose is to organize the conditions that would need to hold for each state to materialize, so they can be checked against future filings.
Scenarios are descriptive, not predictive.
The following six questions are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company on the same six dimensions as every other company.
1. In the May–July 2026 quarter Broadcom reported revenue of $29.6 billion (+85.5%) and net income of $13.1 billion. According to the CEO, AI semiconductor revenue was $16.7 billion (+221%). Adjusted operating margin was 67.9%.
2. The software segment grew 29% as reported. Excluding upfront license revenue, growth was about 8.6%. The company's adjusted gross margin fell to 75.0%, from 78.4% in the prior-year quarter.
3. RPO totaled $179.2 billion and purchase commitments $126.8 billion. In February 2026 the figures were $45.0 billion and $54 million. The portion of RPO recognized within a year fell from 30% to 25%.
4. Broadcom backstops a customer's lease obligations for up to about $29 billion, and the same customer may issue it convertible notes of up to $42 billion. The customer was not named. One distributor was 50% of revenue in the quarter. The company did not repurchase shares in Q3.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held an investment advisory license from 2008 to 2023. As of the publication date of this document, the company does not hold an investment advisory, investment marketing, or portfolio management license.
This document is intended for research and professional education purposes only. Nothing herein constitutes a recommendation to buy, sell, hold, or take any action in securities. It is not a substitute for advice that takes into account each person's individual data and needs. Any decision is the sole responsibility of the investor.
Past performance is not indicative of future results. Data was drawn from official sources: the Form 10-Q for the quarter ended August 2, 2026 (filed September 10, 2026), the Form 10-Qs for Q1 and Q2 of fiscal 2026, the Form 10-K for fiscal 2025 (December 18, 2025), the quarterly earnings releases, and the company's Form 8-K filings with the U.S. Securities and Exchange Commission. Historical ratios: stockanalysis.com. Filing updates published after this date are not included.
The full analytical review of Broadcom (AVGO) for the quarter ended August 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company", a structured scenario framework, and a 6-dimension Analytical Lens.