Broadcom's fiscal third quarter of 2026, reported after the close on Wednesday September 2, 2026, beat the company's own June guidance on each of the three lines it reported against: revenue of $29.6 billion against approximately $29.4 billion guided, AI semiconductor revenue of $16.7 billion against $16.0 billion, and a non-GAAP operating margin of 67.9% against approximately 67%. Non-GAAP gross margin was 75.0%, down 210 basis points sequentially. The stock closed 2.74% lower the next session. What follows is a walk through what was traded for what — the same margin-for-volume question NVIDIA described a week earlier, reached through a different mechanism.
Key Takeaways
- Revenue was $29,591M (+86% year-over-year, +33% sequentially) and AI semiconductor revenue was $16.7B (+221% year-over-year, +54% sequentially), both company records.
- Non-GAAP gross margin walked from 78.4% a year ago to 75.0% in the quarter, with approximately 73% guided for Q4 — a rate the company is trading for volume, and told investors about in advance.
- Non-GAAP operating margin still rose, to 67.9% from 65.5%, because GAAP R&D and SG&A both fell year-over-year while revenue rose 86%.
- Free cash flow was $13,665M, 46% of revenue, and operating cash flow of $14,197M exceeded GAAP net income of $13,088M.
- Capital allocation shifted: $3,103M of dividends, $5,628M of debt repaid, and no share repurchases in the quarter.
- The Q4 revenue guide of $34.8B was about 0.7% below the consensus Yahoo Finance cited, and the stock finished 2.54% below its report-day close two sessions later.
Headline numbers: $29.6B revenue, $16.7B AI, $3.32 non-GAAP EPS
Every headline line in the quarter was a record. Revenue of $29,591M compared with $15,952M a year earlier and $22,187M in the prior quarter. GAAP diluted EPS was $2.68 and non-GAAP diluted EPS was $3.32. Free cash flow was $13,665M.
| Metric | Q3 FY2026 | Q3 FY2025 | Change |
|---|---|---|---|
| Net revenue | $29,591M | $15,952M | +86% |
| Semiconductor solutions | $20,839M | $9,166M | +127% |
| Infrastructure software | $8,752M | $6,786M | +29% |
| AI semiconductor revenue | $16.7B | ~$5.2B (implied) | +221% |
| GAAP operating income | $15,955M | $5,887M | +171% |
| Non-GAAP operating income | $20,095M | $10,455M | +92% |
| GAAP net income | $13,088M | $4,140M | +216% |
| GAAP diluted EPS | $2.68 | $0.85 | +215% |
| Non-GAAP diluted EPS | $3.32 | $1.69 | +96% |
| Free cash flow | $13,665M | $7,024M | +95% |
AI semiconductor revenue of $16.7 billion was 56% of total revenue and 80% of semiconductor solutions revenue, against roughly a third of total revenue a year earlier. That single shift — from a company where AI was one line among several to one where it is the majority of the top line — is what sits behind almost every other number in the quarter, including the one the market spent the following session on.
"Demand for our custom AI accelerators and networking continues to be very strong. Q3 AI semiconductor revenue of $16.7 billion grew 221% year-over-year, and 54% quarter-over-quarter. In Q4 the momentum continues, and we expect AI semiconductor revenue to accelerate to $21.7 billion, up 236% year-over-year.
— Hock Tan (Broadcom Q3 FY2026 press release, September 2, 2026)
The margin trade-off: 78.4% to about 73%, and what a point is worth
Non-GAAP gross margin has not fallen off a cliff; it has walked down a staircase, one step per quarter, in the same quarters that AI revenue has been compounding.
| Quarter | Non-GAAP gross profit | Revenue | Non-GAAP gross margin |
|---|---|---|---|
| Q3 FY2025 | $12,499M | $15,952M | 78.4% |
| Q1 FY2026 | $14,868M | $19,311M | 77.0% |
| Q2 FY2026 | $17,109M | $22,187M | 77.1% |
| Q3 FY2026 | $22,191M | $29,591M | 75.0% |
| Q4 FY2026 (guide) | not stated | ~$34.8B | ~73% |
Chief Financial Officer Amie Thuener attributed the sequential decline to mix, and gave the Q4 step-down a named cause on the call.
"We expect our Q4 consolidated gross margin to be approximately 73%, down from 78% a year ago. As we have discussed previously, this reflects the increasing mix of XPUs with their increasing memory content.
— Amie Thuener, Chief Financial Officer (Broadcom Q3 FY2026 earnings call, September 2, 2026)
Rate is not the same thing as dollars, and both matter. Non-GAAP gross profit dollars rose 78% year-over-year even as the percentage fell. But the percentage compounds against a rapidly growing revenue base, so the arithmetic is worth doing explicitly.
What one gross-margin point is worth at the Q4 revenue guide
| Measure | Calculation | Result |
|---|---|---|
| One point of gross margin | $34,800M × 1% | $348M per quarter |
| The walk from 78.4% to ~73% | 78.4% − 73% | ~5.4 points |
| Gross profit at the older rate | 5.4 × $348M | ~$1.9B per quarter |
| The Q2-to-Q3 step, at Q3 revenue | 2.1 × $29,591M × 1% | ~$0.6B |
These are illustrative sensitivities computed from the reported revenue guide, not figures Broadcom reported.
The same trade-off as NVIDIA, through a different mechanism
A week earlier, the other large AI-accelerator vendor described a gross-margin step-down of its own, and pointed at memory when it did. The parallel is real, but the two explanations are not interchangeable. NVIDIA's chief financial officer framed the pressure as component-cost inflation; Broadcom's framed it as mix — custom accelerators carrying more memory content, arriving in a larger share of the revenue base. Each company has explained its own margin path in its own words, and both explanations touch memory. Treating them as one mechanism would flatten a distinction the two companies themselves drew.
Two defensible readings
The first reading is that Broadcom is buying share of the custom-silicon build-out with gross-margin points, in a market where supply, not demand, is the binding constraint. On that view the trade is deliberate, disclosed a quarter in advance, and visible in the volume it purchased: AI revenue up 221% year-over-year, with $21.7B guided for the next quarter.
The second reading is that the 78%-gross-margin version of this business is over. A product mix that structurally carries more purchased memory content does not revert simply because volumes grow, and a company earning 73% on a much larger base is a different company from one earning 78% on a smaller one — with different valuation arithmetic attached.
Both readings are consistent with the same disclosed numbers. Which one a reader weights more heavily depends on whether the mix shift is treated as a phase of a build-out or as the new shape of the business, and the reported figures alone do not settle that.
The offset: operating leverage held operating margin at 67.9%
The headline-margin story stops at gross margin. One line further down the income statement, the direction reverses. Non-GAAP operating margin was 67.9%, up from 65.5% a year earlier, and the reason is visible in two GAAP expense lines that fell in absolute dollars while revenue nearly doubled.
| Line item | Q3 FY2026 | Q3 FY2025 | Change |
|---|---|---|---|
| GAAP research and development | $2,895M | $3,050M | −5.1% |
| GAAP selling, general and administrative | $996M | $1,072M | −7.1% |
| Combined R&D + SG&A | $3,891M | $4,122M | −5.6% |
| Net revenue | $29,591M | $15,952M | +86% |
| Non-GAAP operating margin | 67.9% | 65.5% | +2.4 points |
That is the whole of the arithmetic: gross-margin rate is being given up, and operating-margin rate is being held by spending that has not grown with revenue. For Q4 the company guides non-GAAP operating margin to approximately 66%, which the CFO described as flat from a year ago — a smaller cushion than the 67.9% just delivered, against a gross-margin guide about two points lower again.
Beat its own guide on all three reported lines, and the stock still fell
The cleanest benchmark for a quarter is the guidance the company itself set three months earlier, because it needs no interpretation.
| Line | June guidance for Q3 | Q3 FY2026 actual | Difference |
|---|---|---|---|
| Revenue | ~$29.4B | $29.6B | +$191M (+0.65%) |
| AI semiconductor revenue | $16.0B | $16.7B | +$0.7B (+4.4%) |
| Non-GAAP operating margin | ~67% | 67.9% | +0.9 points |
Consensus differed by compiler
Consensus is less tidy. Yahoo Finance cited a consensus of $3.23 in EPS and $29.45B in revenue, on which basis both lines were beaten. A separate captured consensus series put EPS at $3.30 — beaten by 0.57% — and revenue at $29.95B, against which the actual $29,591M came in 1.2% lower. The same quarter is therefore a revenue beat or a small revenue shortfall depending on whose estimate is used, which is precisely why the company's own guide is the more useful anchor.
| Quarter | Consensus EPS | Actual EPS | Surprise |
|---|---|---|---|
| Q3 FY2025 | $1.68 | $1.69 | +0.50% |
| Q4 FY2025 | $1.90 | $1.95 | +2.65% |
| Q1 FY2026 | $2.07 | $2.05 | −0.87% |
| Q2 FY2026 | $2.45 | $2.44 | −0.24% |
| Q3 FY2026 | $3.30 | $3.32 | +0.57% |
The objection named in coverage was not the quarter but the guide: $34.8B against a Q4 consensus Yahoo Finance put at $35.05B, roughly $0.25B, or 0.7%, short. Cody Acree of StoneX Financial, who maintained a Buy rating, put it this way to Yahoo Finance: "The magnitude is not quite enough from a top and bottom line standpoint on the beat and raise when you have a company that is this levered to AI" — in his words, "not enough to keep investors happy."
How AVGO traded: September 3 and 4, from the closes
The results were released after the September 2 close, so the reaction sits in the two sessions that followed.
| Date | Close | Change | Volume | Note |
|---|---|---|---|---|
| Wed Sep 2, 2026 | $367.24 | −0.66% | 38.9M | Results released after this close |
| Thu Sep 3, 2026 | $357.16 | −2.74% | 60.1M | Open $351.61; low $342.33; high $359.40 |
| Fri Sep 4, 2026 | $357.90 | +0.21% | 32.5M | Last session before the Labor Day holiday |
The distinction between the open, the low and the close matters here. The shares opened 4.26% below the report-day close and touched $342.33 intraday, 6.78% down — the level behind the "6%-plus drop" framing in some coverage — before closing 2.74% lower. Volume of 60.1 million shares was roughly 3.1 times the 19.5-million-share average of the 22 sessions from August 3 to September 1. The following session added 0.21%, leaving the stock 2.54% below its report-day close two sessions after the print.
Q4 guide: $34.8B, $21.7B AI, about 73% gross margin, about 66% operating margin
| Q4 FY2026 outlook | Figure | Basis |
|---|---|---|
| Revenue | ~$34.8B (+93% year-over-year) | Press release |
| AI semiconductor revenue | $21.7B (+236% year-over-year) | Press release |
| Non-GAAP operating margin | ~66% of revenue | Press release |
| Non-GAAP gross margin | ~73% | Call commentary |
| Infrastructure software | ~$8.7B | Call commentary |
| Non-AI semiconductor | ~$4.3B | Call commentary |
The guide implies a 17.6% sequential increase on the $29.6B just reported, and would put AI at about 62% of revenue. The three components stated on the call sum to $34.7B, consistent with the $34.8B headline after rounding — a useful internal check, since it means the AI figure is not doing arithmetic work the other segments are not.
Hock Tan's $115B and $230B: the company's stated expectation
Forward-looking statements
- The figures in this section are management's own expectations described on an earnings call, not reported results.
- Forward-looking statements involve risks and uncertainties, and actual outcomes may differ materially from them.
- Past performance does not guarantee future results.
On the call, President and Chief Executive Officer Hock Tan said the company has "secured the supply to again double AI revenue to approximately $115 billion" in fiscal 2027, and that it has "line of sight for fiscal 2028 AI semiconductor revenue growth to again double to $230 billion." Those are the company's stated expectations, described by its chief executive; they are not results and not a forecast made here.
What a reader can check is whether the arithmetic is internally consistent with the company's own quarterly figures.
| Quarter | AI semiconductor revenue | Year-over-year |
|---|---|---|
| Q1 FY2026 | $8.4B | +106% |
| Q2 FY2026 | $10.8B | +143% |
| Q3 FY2026 | $16.7B | +221% |
| Q4 FY2026 (guide) | $21.7B | +236% |
Those four quarters sum to approximately $57.6B, of which the last is guidance. Doubling that base lands at roughly $115B, so the stated figure is at least internally consistent with the company's own run-rate. Joseph Moore of Morgan Stanley wrote that the outlook aligns closely with the firm's own fiscal 2027 AI revenue estimate of $120B. RBC Capital Markets was reported as viewing the $115B figure as in line with its own expectations but below consensus; that is reported commentary rather than a note reviewed here.
Six XPU customers and the supply constraints named on the call
Hock Tan cited six XPU customers accelerating the adoption of custom accelerators, and said AI networking revenue grew more than 2.5 times year-over-year. He named four constraints on supply: leading-edge silicon, substrates, HBM memory, and land, power and shell — with a Singapore fab due to begin supplying substrates in fiscal 2027. Note that memory appears in the constraint list and in the margin explanation, which is the connective tissue between the demand story and the gross-margin walk.
Cash: $13.7B free cash flow, zero buybacks, $5.6B of debt repaid
| Cash-flow item | Q3 FY2026 | Q3 FY2025 | Change |
|---|---|---|---|
| Operating cash flow | $14,197M | $7,166M | +98% |
| Capital expenditures | $532M | not stated | — |
| Free cash flow | $13,665M | $7,024M | +95% |
Free cash flow was 46.2% of revenue. The more interesting line is that operating cash flow of $14,197M exceeded GAAP net income of $13,088M by $1,109M — cash conversion of 108% of GAAP net income — in a quarter when the balance sheet shows a substantial working-capital build. The mechanical reason available from the statements is that GAAP net income carries roughly $2.0B of non-cash acquisition amortization ($1,499M in cost of revenue plus $507M in operating expenses) that adds back in the cash-flow statement.
That is the opposite shape to NVIDIA's most recent cash-flow statement, where a working-capital build absorbed most of the period's cash. Two accelerator vendors in the same demand environment produced opposite cash-conversion pictures in consecutive weeks, and the difference sits in their statements rather than in any commentary about them.
Capital allocation and the balance sheet against fiscal year-end
| Use of cash | Q3 FY2026 | First nine months FY2026 |
|---|---|---|
| Dividends paid | $3,103M | $9,281M |
| Share repurchases | $0 | $8,450M |
| Payments on debt obligations | $5,628M | $10,528M |
| Proceeds from borrowings | $0 | $4,474M |
| Capital expenditures | $532M | $1,013M |
Share repurchases were nil in the quarter, against $600M in Q2 and $8,450M across the first nine months, which implies $7,850M in Q1. That is a fact of the cash-flow statement rather than a stated policy; no motive was given for the change in the reported materials.
| Balance sheet | August 2, 2026 | November 2, 2025 (fiscal year-end) | Change |
|---|---|---|---|
| Cash and cash equivalents | $23,975M | $16,178M | +$7,797M |
| Accounts receivable, net | $13,707M | $7,145M | +92% |
| Inventory | $4,523M | $2,270M | +99% |
| Total debt | $59,419M | $65,136M | −8.8% |
| Total assets | $188,148M | $171,092M | +$17,056M |
Receivables and inventory have both roughly doubled since the start of the fiscal year. On inventory, Amie Thuener said the company "ended the third quarter with inventory of $4.5 billion to support our strong semiconductor demand." Cash rose about $4.4B within the quarter from the roughly $19.6B reported at the end of Q2. The declared quarterly dividend is $0.65 per share, payable September 30, 2026 to holders of record at the close of business on September 21, 2026.
Segments: semiconductor solutions $20.8B, infrastructure software $8.75B
| Segment | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | Share of Q3 revenue |
|---|---|---|---|---|
| Semiconductor solutions | $20,839M | $15,009M | $9,166M | 70% |
| Infrastructure software | $8,752M | $7,178M | $6,786M | 30% |
A year ago the split was 57% semiconductors and 43% software; it is now 70/30. Within semiconductors, the non-AI business is roughly $4.1B — the $20,839M segment less the $16.7B AI figure — against roughly $4.0B a year ago, with approximately $4.3B indicated for Q4 on the call. In other words, essentially all of the segment's growth is the AI line.
Infrastructure software is the quieter surprise. It grew 1% year-over-year in Q1 FY2026 and 9% in Q2, then 29% in Q3, a 22% sequential step from $7,178M to $8,752M — and is guided flat at approximately $8.7B for Q4. The reported materials do not explain the step-up, so the shape is worth noting without a cause attached to it.
What named analysts said
| Firm | Analyst | Rating | Price target change |
|---|---|---|---|
| Morgan Stanley | Joseph Moore | Overweight (maintained) | $502 to $505 |
| Citi | Atif Malik | Buy (maintained) | $500 to $515 |
| Cantor Fitzgerald | C.J. Muse | Buy (maintained) | $525 to $600 |
| Susquehanna | Christopher Rolland | Buy (reiterated) | $490 (unchanged) |
| D.A. Davidson | Gil Luria | Hold (maintained) | $400 to $350 |
| StoneX Financial | Cody Acree | Buy (maintained) | not stated |
All six named firms kept their existing rating; three raised their price targets, one cut, one left it unchanged and one was not stated. The gap between the notes and the tape is itself the observation: targets mostly moved up while the shares moved down. Joseph Moore of Morgan Stanley wrote that "we highlighted in our preview some expectations issues that may limit near term upside, but the results are impressive," with a bull case of $640 and a bear case of $300 around his $505 target. Gil Luria of D.A. Davidson was the one reduction in the set, to $350 from $400.
Continuity with the June print
This was not the first sharp post-earnings session of the year for these shares, and the reaction reads differently once the June print is in view.
| Date | Close | Change | Note |
|---|---|---|---|
| Tue Jun 2, 2026 | $481.57 | +4.70% | Highest close in the series |
| Wed Jun 3, 2026 | $479.23 | −0.49% | Q2 results released after this close |
| Thu Jun 4, 2026 | $418.91 | −12.59% | First session after the Q2 print |
| Fri Jun 5, 2026 | $385.73 | −7.92% | Second session after the Q2 print |
| Wed Aug 26, 2026 | $355.59 | −0.32% | Lowest close in the series since June |
| Fri Sep 4, 2026 | $357.90 | +0.21% | Second session after the Q3 print |
The two sessions after the June 3 report took the shares down 19.5% in total. By comparison, the two sessions after this print totalled a 2.54% decline. The stock went into the September report already 23.7% below its June 2 close and 14.15% below its August 7 local high of $427.76, and the September 3 close of $357.16 finished just $1.57 above the August 26 low close. Two sessions later it was still there. For the same season's other accelerator print, AMD's most recent quarter offers a third data point on how these reactions have been running.
One organisational note for context: this was Amie Thuener's first earnings report as chief financial officer, having succeeded Kirsten Spears effective June 12, 2026 after joining from Alphabet, where she had been chief accounting officer.
Frequently asked questions
What did Broadcom report for fiscal Q3 2026?
Revenue of $29,591M (+86% year-over-year), AI semiconductor revenue of $16.7B (+221%), GAAP diluted EPS of $2.68, non-GAAP diluted EPS of $3.32, non-GAAP gross margin of 75.0%, non-GAAP operating margin of 67.9% and free cash flow of $13,665M, for the quarter ended August 2, 2026.
Why did Broadcom's gross margin fall to 75%?
Non-GAAP gross margin fell 210 basis points sequentially from 77.1%. Amie Thuener attributed the decline to AI semiconductor revenue becoming a greater proportion of the total mix, and the guided step to approximately 73% in Q4 to the increasing mix of XPUs with their increasing memory content.
What is Broadcom's Q4 FY2026 guidance?
Revenue of approximately $34.8B (+93% year-over-year), AI semiconductor revenue of $21.7B (+236%), non-GAAP operating margin of approximately 66% of revenue, and — from call commentary — non-GAAP gross margin of approximately 73%, infrastructure software of approximately $8.7B and non-AI semiconductor revenue of approximately $4.3B.
Did Broadcom beat its own guidance?
On each of the three guided lines that has a reported actual: revenue of $29.6B against approximately $29.4B, AI semiconductor revenue of $16.7B against $16.0B, and a non-GAAP operating margin of 67.9% against approximately 67%. Consensus comparisons differ by compiler, which is why the company's own guide is the cleaner benchmark.
How did AVGO stock react after the Q3 FY2026 earnings?
The shares closed at $357.16 on September 3, down 2.74% from the report-day close, after opening at $351.61 and touching $342.33 intraday, on 60.1 million shares — about 3.1 times the prior 22-session average. They closed at $357.90 on September 4, up 0.21%, leaving them 2.54% below the report-day close.
Did Broadcom buy back shares in Q3 FY2026?
No. Share repurchases were nil in the quarter, against $600M in Q2 and $8,450M across the first nine months. The company paid $3,103M of dividends and $5,628M against debt obligations in the same quarter.
What did Hock Tan say about $115 billion of AI revenue?
He said on the earnings call that Broadcom has secured the supply to approximately double AI revenue to about $115 billion in fiscal 2027, and has line of sight to it doubling again to $230 billion in fiscal 2028. Both are the company's stated expectations rather than reported results.
When is Broadcom's next dividend paid?
The declared quarterly dividend of $0.65 per share is payable on September 30, 2026 to stockholders of record at the close of business on September 21, 2026.