Broadcom's Q2 FY2026: AI-Driven Revenue Soars, Guidance Points to Continued Momentum

Broadcom reported a revenue of $22.19 billion for Q2 FY2026, surpassing the street estimate of $22.13 billion by 0.3%. The company's earnings per share (EPS) came in at $2.44, beating the estimate of $2.40 by 1.7%. This performance reflects the company's ability to capitalize on the growing demand for AI semiconductors and its diversified revenue streams.

The revenue growth was primarily driven by the AI semiconductor segment, which recorded a record $10.8 billion in revenue, up 143% year on year. This segment's performance is a testament to Broadcom's strategic focus on AI and its ability to meet the increasing demand from hyperscale data centers and cloud service providers.

Non-AI semiconductor revenue also showed growth, with $4.2 billion in revenue, up 6% year on year. The company expects this segment to continue its growth trajectory, forecasting non-AI semiconductor revenue to be approximately $4.5 billion in Q3, up 12% from a year ago.

Software revenue, which includes infrastructure software, was $7.2 billion, up 9% year on year. This segment represented 32% of the total revenue. The company's guidance for Q3 includes a forecast of $8.9 billion in software revenue, up 31% year on year.

Despite the strong revenue growth, Broadcom's gross margin for the quarter was 67.2%, down slightly from the previous quarter. However, the company's operating margin increased by 200 basis points year over year to 67.3%. CFO Kirsten Spears explained, "Note that even with the decline in gross margin, operating margin increased 200 basis points year over year expenses remained relatively flat. to 67.3% as operating Adjusted EBITDA of $15.2 billion or 69% of revenue was above our guidance of 68%."

The Semiconductor Solutions segment, which includes both AI and non-AI semiconductors, reported a gross margin of approximately 70%. The segment's operating expenses were $1.2 billion, reflecting increased investment in R&D for leading-edge AI semiconductors. Spears noted, "Gross margin for our Semiconductor Solutions segment was approximately 70%, Operating expenses of $1.2 billion reflected increased investment in R&D for leading edge AI semiconductors and represented 8% of revenue."

The Infrastructure Software segment, which includes products like Symantec and CA Technologies, reported a gross margin of 93%. The segment's operating expenses were $1 billion in the quarter.

Broadcom's guidance for Q3 FY2026 is highly optimistic, with the company expecting consolidated revenue to grow to $29.4 billion, up 84% year on year.

The company expects AI semiconductor revenue to accelerate to $16 billion in Q3, up over 200% year on year. For the full year 2026, the company expects to achieve AI semiconductor revenue of $56 billion, up approximately 180% from fiscal 25.

Non-AI semiconductor revenue is forecasted to be approximately $4.5 billion in Q3, up 12% from a year ago. Software revenue is expected to be approximately $8.9 billion, up 31% year on year.

The tone of the earnings call was positive and confident, with a slight improvement in sentiment and guidance tone compared to the previous quarter. According to the tone history, the sentiment score for Q2 FY2026 was 0.23, with a guidance tone of 0.54. The prepared sentiment score was 0.58, and the AI optimism score was 0.35. The uncertainty index decreased by 18.4, and the QA evasiveness index improved by 9.6.

CEO Hock E. Tan's comments on the company's performance and future outlook were particularly noteworthy:

• "Well, in Q2, revenue was a record $15 billion as we grew 79% year on year."
• "For the full year 2026, we expect to achieve AI semiconductor revenue of $56 billion, up approximately 180% from fiscal 25."
• "And reiterate our AI semiconductor revenue guidance to be in excess of $100 billion."

CFO Kirsten Spears also provided detailed insights into the financial performance and guidance:

• "Consolidated revenue was a record $22.2 billion for the quarter, up 48% from a year ago."
• "Q2 operating income was a record $14.9 billion, up 52% from a year ago."
• "Free cash flow in the quarter was a record $10.3 billion and represented 46% of revenue."

Broadcom's strong performance and optimistic guidance have significant implications for its supply chain partners. The company's increased investment in AI semiconductors will likely drive demand for advanced packaging and test equipment from suppliers like E&R Engineering Corp. and Keysight [KEYS]. The surge in AI semiconductor revenue will also benefit foundry partners like TSMC [TSM] and GlobalFoundries [GFS].

• E&R Engineering Corp. (8027.TW): Advanced-packaging production-line laser/plasma process equipment (FOPLP / glass-substrate)
• Keysight [KEYS]: Test and measurement, parametric testers
• GlobalFoundries [GFS]: Specialty node chips

• TSMC [TSM]: 3nm/5nm networking + custom AI ASIC fabrication

• Avnet [AVT]: Semiconductor distribution and logistics

• Alphabet (Google) [GOOGL]: Silicon implementation partner for TPU ASICs (~$8B/yr)

Comparing Broadcom's performance to its peers in the fabless semiconductor industry, the company stands out for its strong revenue growth and gross margin. Among the peers listed, Broadcom's revenue growth of 47.9% year on year is second only to NVIDIA [NVDA], which reported an 85.2% year-on-year growth. However, Broadcom's gross margin of 67.2% is higher than most of its peers, with the exception of Meta [META], which reported a gross margin of 81.9%.

Broadcom's Q2 FY2026 earnings report highlights the company's strong performance, driven by significant growth in AI semiconductor revenue. The company's diversified revenue streams and strong financial metrics, coupled with optimistic guidance for the next quarter, position Broadcom well for continued success. The positive tone of the earnings call and the company's strategic investments in AI semiconductors further reinforce this outlook.