Date: March 4, 2026 | Source: Motley Fool (fool.com) / company press release
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Ji Yoo (Head of IR): Good afternoon. Joining me on today's call are Hock E. Tan, President and CEO; Charlie Kawwas, President, Semiconductor Solutions Group; Kirsten Spears, CFO; and our incoming CFO, Amy Teiner. Broadcom distributed a press release and financial tables after the market closed describing our financial performance for the first quarter of fiscal year 2026. During the prepared comments, Hock and Kirsten will be providing details of our first quarter results, guidance for our second quarter as well as commentary regarding the business environment. We will take questions after the end of our prepared comments.
Hock Tan (President & CEO): Thank you, Ji, and thank you everyone for joining today. In our fiscal Q1 2026, total revenue reached $19.3 billion, up 29% year on year, exceeding our guidance on the back of better than expected growth in AI semiconductors. This top line strength translated into exceptional profitability with Q1 consolidated adjusted EBITDA hitting a record $13.1 billion, which is 68% of revenue. These figures demonstrate that our scale continues to drive significant operating leverage. Now we expect this momentum to accelerate as our custom AI XPUs hit their next phase of deployment among our five customers. Looking ahead to next quarter, Q2 2026, we are guiding for consolidated revenue of approximately $22 billion, which represents 47% year on year growth.
Let me now give you more color on our semiconductor business. In Q1, revenue was a record $12.5 billion as year on year growth accelerated to 52%. This robust growth was driven by AI semiconductor revenue, which grew 106% year on year to $8.4 billion, way above our outlook. In Q2, this momentum accelerates and we expect semiconductor revenue to be $14.8 billion, up 76% year on year. Driving this is AI revenue growth, which will accelerate very sharply to 140% year on year to $10.7 billion.
Our customer accelerator business grew 140% year on year in Q1. This momentum continues in Q2. The realm of custom AI accelerators across all our five customers is progressing very well. For Google, we continue our trajectory of growth in 2026 with strong demand for the seventh generation TPU. In 2027 and beyond, we expect to see even stronger demand from next generations of TPU. For Anthropic, we are off to a very good start in 2026 for 1 gigawatt of TPU compute, and for 2027, this demand is expected to surge in excess of 3 gigawatts of compute. Our XPU franchise extends beyond TPUs. Contrary to recent analyst reports, Meta's custom accelerator MTIA roadmap is alive and well. We are shipping now. And for the next generation XPUs, we will scale to multiple gigawatts in 2027 and beyond.
Our ability to assure supply in these times of constrained capacity in leading-edge wafers, in high-bandwidth memory, and substrates ensures the durability of our partnerships. We have fully secured capacity of these components for 2026 through 2028. Today, in fact, we have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027. We expect OpenAI to be deploying at over 1 gigawatt of compute in 2027.
AI networking revenue was up 60% year on year, reaching one third of AI revenue, and we expect it to rise to 40% of total AI revenue next quarter. We have been shipping the industry's only 100 terabit Ethernet switch, the Tomahawk 6, for over one year, and we will be taping out our next-generation 200 terabit switch. Our industry-leading 200G and 400G SerDes enable co-packaged copper and co-packaged optics for scale-up.
Turning to non-AI semiconductors, Q1 revenue of $4.1 billion was flat with the previous year. Bookings exceeded shipments as the non-AI business continues on its path towards a full cyclical recovery. In Q2, we forecast non-AI semiconductor revenue of approximately $4.1 billion, up 4% year on year.
Now let me turn to the infrastructure software segment. Q1 software revenue of $6.8 billion was up 1% year on year. VMware revenue was up 13%, with annual recurring revenue up 19% and total contract value bookings of $9.2 billion. Software remains not disrupted by AI and is positioned as essential to enterprise and private-cloud generative AI environments. For Q2, we forecast software revenue of approximately $7.2 billion, up 9% year on year.
Now, Kirsten will provide further details on our financials and guidance.
Kirsten Spears (CFO): Thank you, Hock, and good afternoon, everyone. In Q1, we achieved record revenue of $19.3 billion, up 29% year on year, and record adjusted EBITDA of $13.1 billion, or 68% of revenue. Consolidated gross margin was 77%, with Semiconductor Solutions gross margin at approximately 68% and Infrastructure Software gross margin at 93%. Operating income was $12.8 billion, up 31% year on year, with operating margin at 66.4%. Free cash flow was $8 billion, or 41% of revenue.
We returned $3.1 billion in dividends and $7.8 billion in share repurchases, for a total of $10.9 billion returned to shareholders this quarter. The Board approved an additional $10 billion share repurchase authorization through the end of 2026. Inventory ended at $3.0 billion, with days on hand increasing to 68 days, up from 58, attributed to preparation for AI growth.
For Q2, we expect non-GAAP diluted share count of approximately 4.94 billion, not accounting for potential further buybacks. We project our non-GAAP tax rate at 16.5% for Q2 and fiscal year 2026, due to global minimum tax and income mix.
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Analyst (on the $100B+ 2027 AI chip revenue and backlog): How does the line of sight to over $100 billion in AI chip revenue for 2027 hold up, and what gives you confidence?
Hock Tan: Visibility into customer roadmaps has dramatically improved. We have confirmed volume ramp milestones across Google, Anthropic, Meta and our newest customer OpenAI, and we have secured component supply through 2028. Our ability to assure supply in constrained leading-edge wafers, HBM and substrates ensures the durability of these partnerships.
Analyst (on gross margin pressure from AI rack shipments): Revenue guidance includes flat sequential gross margin expectations for Q2, in response to investor concerns regarding lower-margin AI rack shipments. How should we think about the mix?
Hock Tan / Kirsten Spears: Gross margin remains stable at 77% consolidated despite the shift toward lower-margin AI rack shipments, reflecting our scale and operating leverage. Semiconductor Solutions gross margin is approximately 68%; Infrastructure Software gross margin is 93%. We reaffirmed gross margin stability despite recent product mix changes.
Analyst (on Meta's MTIA roadmap): There have been reports questioning Meta's custom accelerator roadmap. Can you address this?
Hock Tan: Meta's custom accelerator MTIA roadmap is alive and well. We are shipping now. We debunked recent speculations — for the next generation XPUs, we will scale to multiple gigawatts in 2027 and beyond.
Analyst (on AI networking): How is AI networking contributing and what is the outlook?
Hock Tan: AI networking revenue was up 60% year on year and reached one third of AI revenue, expected to rise to 40% of total AI revenue next quarter. Direct attached copper for scale-up and Ethernet for both scale-up and scale-out is a critical cost and performance differentiator rather than reliance on emerging optical standards.