How Broadcom makes its money
Broadcom is a US technology group with two pillars. The first pillar is semiconductors. These include chips for networking, broadband, wireless connections and data storage. The second pillar is infrastructure software. The largest part of it is VMware, a provider of data center virtualization.
For the AI business, two product groups matter most. The first group is custom chips, known in industry jargon as “XPUs”. Large cloud and AI groups have Broadcom develop their own accelerators. These chips are tailored precisely to the computing workload of a single customer. They complement or replace graphics processors from Nvidia. The second group is networking technology. Broadcom’s Ethernet chips connect tens of thousands of accelerators into a single computing cluster.
The latest quarterly report shows the scale. In the second quarter of fiscal year 2026, which ended on May 3, 2026, Broadcom had revenue of $22.2 billion, according to its official press release. Of that, $15.0 billion came from semiconductors and $7.2 billion from software.
Why I took a closer look at Broadcom
When people talk about AI stocks, they usually name Nvidia first. Broadcom sits in the same data centers but is less often in the spotlight. I like to look at exactly this second row. That is often where you find firms that earn money from a bottleneck without supplying the best-known product.
There is also a special feature. Broadcom is not a pure chip developer. For years, the group has been buying software firms and trimming them for profit. If you want to assess the stock, you therefore have to understand two very different businesses. A quick judgment based on a headline falls short here.
In every analysis, I separate the share price from the business. A rising price does not prove a good company. A falling price does not prove a bad one. Products, customers, figures and risks come first. Only then do I look at the chart.
Custom chips and networking technology drive growth
Fiscal year 2025 ended on November 2, 2025. For that year, Broadcom reported revenue of $63.9 billion, according to its annual announcement, an increase of 24%. GAAP net income was $23.1 billion.
After that, growth accelerated significantly. In the second quarter of 2026, revenue rose by 48% to $22.2 billion. Net income reached $9.3 billion. Revenue from AI semiconductors was $10.8 billion, an increase of 143%. That was almost half of total group revenue. For the third quarter, management projected revenue of around $29.4 billion, of which $16.0 billion from AI semiconductors.
Behind these forecasts are concrete contracts. In October 2025, OpenAI and Broadcom announced a collaboration on 10 gigawatts of AI accelerators. OpenAI designs the systems, and Broadcom co-develops and builds them. The roll-out starts in the second half of 2026 and is due to run until the end of 2029. Shortly afterwards, Anthropic expanded its partnership with Google and Broadcom by several gigawatts of TPU computing capacity.
Some context belongs here. Announcements like these describe plans, not secured revenue. Construction times, power supply and chip manufacturing can be delayed. A management forecast is an expectation, not a guarantee.
The software division around VMware
At the end of 2023, Broadcom completed its acquisition of VMware. The announced purchase price was around $61 billion in cash and shares. Broadcom also took on around $8 billion of VMware’s debt. The software virtualizes servers and forms the basis of many corporate data centers.
Broadcom switched the business model from perpetual licenses to subscriptions. This increases recurring revenue and the margin. But some customers report significantly higher prices and are looking at alternatives. In the second quarter of 2026, the division grew by 9% to $7.2 billion. Software is therefore growing much more slowly than the AI business. In return, it delivers predictable earnings that help fund debt reduction, among other things.
The dividend has grown for 15 years
Broadcom has paid a dividend since fiscal year 2011, four times a year. For fiscal year 2026, the board raised the quarterly dividend by 10% to $0.65 per share. The annual target is $2.60. According to company information, this is the fifteenth consecutive annual increase.
The payout is covered by free cash flow. In fiscal year 2025, free cash flow was $26.9 billion. For German residents: US dividends are subject to American withholding tax, and German capital gains tax (Abgeltungsteuer) comes on top.
Three questions before a possible purchase
The first question concerns the business. Is Broadcom really delivering the announced AI revenue? To check, I compare one quarter’s forecast with the result reported later. It also matters whether the margin keeps pace with growth. Custom chips for large customers tend to bring lower margins than a seller’s market with standard products.
The second question concerns the trend. I check whether the price trades above its long-term moving averages and whether these lines are rising. This does not replace a valuation. It only shows me whether I would be acting with the market or against it.
The third question concerns momentum. After strong rises, a stock is often overheated in the short term. The Relative Strength Index helps me assess this situation soberly. Only when business, trend and momentum fit together is a closer examination worthwhile for me.
The key risks
A few customers carry the AI business. Custom chips are made for a small group of cloud and AI groups. If a single customer postpones a project, a lot of revenue is missing immediately. Customers can also take on more chip development themselves or switch partners.
Debt from acquisitions is high. At the end of fiscal year 2025, the balance sheet showed $62.0 billion in long-term debt and $3.2 billion in short-term debt. So far, the high cash flow services this burden well. A slump in revenue or persistently high interest rates would narrow the room for manoeuvre.
The VMware integration remains a bet. Price increases secure revenue in the short term. But they drive some customers to competitors or to open-source solutions. Whether the subscription base stays stable over the years is an open question.
The valuation assumes continued high growth. In August 2026, the market value was around $2 trillion. According to market data, the price-to-earnings ratio based on the last twelve months was around 70. Based on expected earnings, it is much lower. A price like this forgives little. Even a slight cooling of AI demand can put heavy pressure on the valuation.
Semiconductors remain cyclical. AI data centers also follow investment cycles. If the large operators stretch out their spending, chip developers and network equipment suppliers are hit at the same time. The past shows that such turns can come quickly.
My conclusion on Broadcom stock
Broadcom combines three roles in one group: developer of specialized accelerators, supplier of AI networking equipment and software provider with subscription income. The figures from fiscal years 2025 and 2026 show that this combination currently works exceptionally well. The contracts with OpenAI and Anthropic give the growth a concrete basis.
At the same time, this growth depends on a few large customers. The balance sheet carries high acquisition debt. The market value already prices in a lot of future. If you only read the headlines, you see little of this.
For my own check, I therefore always follow the same order: first business development, then the long-term trend, then short-term momentum. This method does not make a decision for you. But it ensures that you measure Broadcom by the same standards as any other stock.