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Earnings deep dive · Tier A Semi

Broadcom Q2 FY26 — Record AI Revenue, a Bar Set at Perfection

AI semiconductor revenue grew 143% to $10.8B and Q3 is guided to $16B — yet the stock fell, because the one number investors wanted raised, the FY27 $100B AI target, held instead of moving.
Published · Post-print analysis · AVGO · For analysts covering AI compute, custom silicon, and networking

The setup

Broadcom printed Q2 FY26 (quarter ended ) after the close on , and on the fundamentals it was the kind of quarter that should have been a victory lap: record revenue, record operating profit, record free cash flow, and AI semiconductor revenue up 143% year-over-year. The stock fell anyway — down roughly 7–8% in the after-hours session despite the beat on the bottom line. unverified on the exact close-to-close magnitude, but the direction is not in dispute.

This is the cleanest example this cycle of the gap between a great print and a great reaction. When a name has compounded the way AVGO has, the bar isn't "beat consensus" — it's "raise the number everyone is already underwriting." Broadcom beat the quarter, guided the next one higher, and still disappointed, because the full-year FY27 AI target stayed where it was. That divergence — fundamentals accelerating, the tape selling the news — is the whole story of this print.

Broadcom Q2 FY26 Income Statement Q2 FY26 · quarter ended · GAAP · $ in billions Revenue $22.19B +48% Y/Y $15.01B Semiconductor solutions $7.18B Infrastructure software Gross profit $15.41B 69.5% margin Cost of revenue ($6.77B) 30.5% of revenue incl. $1.46B acquired-intangible amortization Operating profit $10.79B 48.6% margin Operating expenses ($4.63B) Net profit $9.31B 42.0% margin +88% Y/Y Tax ($0.82B) 8.1% of pre-tax Interest, net of other income ($0.66B) $776M interest less $118M other income R&D ($3.00B) 13.5% of revenue SG&A ($1.05B) 4.8% of revenue Amortization of intangibles ($0.51B) 2.3% of revenue Restructuring & other ($0.07B) 0.3% of revenue Source: Broadcom Q2 FY26 8-K, Exhibit 99.1 · chart: tkal.news
Where Broadcom's Q2 FY26 revenue dollar went: 69.5% survives cost of revenue, 48.6% survives operating expense, 42.0% lands as net income. Interest, net of other income = $776M interest expense − $118M other income, net: $10,788M − $658M − $820M = $9,310M. Percent-of-revenue notes are the line over net revenue. All lines GAAP, three months ended .

The numbers

Consolidated revenue was $22,187M, +48% year-over-year and +15% sequentially from Q1's $19,311M — a record, but a hair below the ~$22.7B Street consensus, which is the first crack the bears pointed to. The mix is the story: Semiconductor solutions $15,009M (+79% YoY), now 68% of the company, against infrastructure software $7,178M (+9% YoY), the post-VMware engine now growing at a single-digit clip. AI did all the work, and software is no longer hiding the deceleration in the rest of the portfolio.

Within semis, AI revenue was $10.8B, +143% YoY — roughly 49% of total revenue and about 72% of the semiconductor segment. The non-AI semiconductor business (wireless, broadband, server storage, industrial) is therefore around $4.2B and essentially flat — the cyclical-recovery leg of the thesis still hasn't arrived, and the entire growth narrative now rests on custom accelerators and AI networking.

Profitability remains the most impressive part of the model. Non-GAAP gross margin 77.1% ($17,109M), non-GAAP operating income $14,928M (67.3% of revenue), adjusted EBITDA $15,244M (69%), and free cash flow $10,262M (46% of revenue) on just $231M of capex — an asset-light cash machine. Non-GAAP diluted EPS was $2.44 (+54% YoY), essentially in line with consensus; GAAP diluted EPS was $1.91.

One balance-sheet note worth flagging for a working-capital lens: inventory rose to $4,328M from $2,270M at the November year-end (+91%), and trade receivables to $10,830M from $7,145M (+52%). In a demand-constrained AI ramp this is the right kind of build — positioning ahead of committed shipments — but it's the line to watch if the ramp ever cools. Cash ended at $19,628M against ~$64.9B of total debt (~$45.3B net), and the company notably pulled back buybacks to $600M in Q2 from $7,850M in Q1.

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The rest of this dive is for paid subscribers.

The headline numbers are above. The 7 sections below carry the mechanism, the peer read, the valuation work, and the dated tests that decide it.

  • The guide is where the acceleration shows
  • The customer roster is the real disclosure
  • How peers read this
  • Why a record quarter sold off
  • What we'd watch from here
  • Listed-market read-through
  • Bottom line
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