AVGO vs. NVDA: Did the challenger blink first?

Broadcom (AVGO) released its fiscal Q4 FY2025 results (quarter ended Oct 2025) after the U.S. close on Dec 12 Beijing time.

1. Headline results: Revenue was $18.0bn (+28.2% YoY), beating estimates ($17.5bn). QoQ revenue rose by $2.0bn, driven mainly by AI.Gross margin was 68%. Ex amortization and restructuring, underlying GPM was 76.6%, down 17bps QoQ, as lower-margin custom ASICs grew as a mix.

2. Semiconductor segment: Revenue was $11.07bn, up $1.9bn QoQ, with AI the primary incremental driver. Details:

① AI: $6.5bn, +$1.3bn QoQ, above the $6.2bn market view. AI revenue is concentrated in three customers (Google, Meta, and ByteDance), with the QoQ lift largely from higher shipments of Google's TPU v6.Post Q3, Google and Meta raised capex again, suggesting further AI acceleration. $Broadcom(AVGO.US) guides Q1 AI revenue to $8.2bn, implying +$1.7bn QoQ.

② Non-AI: $4.6bn, +1.3% YoY, broadly stable. Broadband saw a steady recovery and wireless was flat, while other end-markets declined amid muted enterprise spending recovery.

3. Infrastructure software: Revenue was $6.94bn (+19% YoY), mainly from VMware integration and pricing model changes (shifting from perpetual licenses to subscriptions). Going forward, software growth will be driven by VMware's subscription-led organic expansion, while M&A-driven high growth has faded.

4. Opex: Core opex (R&D + S&M) was $4.09bn, roughly flat QoQ. With scale benefits, the core opex ratio fell to ~22.7%.Stock-based comp has risen meaningfully over the past two years and now makes up nearly half. Ex SBC, core opex was $2.13bn, up $80mn QoQ.

5. VMware integration progress: Dolphin Research tracks leverage via Total Debt/LTM Adj. EBITDA, which fell further to 2.1 this quarter. This has returned to pre-acquisition levels, indicating the VMware deal impact on leverage has been largely absorbed within two years.

6. Guidance: Q1 FY2026 revenue is guided to ~$19.1bn vs. the Street at $18.5bn, with Adj. EBITDA margin of 67%. AI revenue is expected to rise to $8.2bn.

Dolphin Research take: Beat on prints, but AI orders douse sentiment

Revenue and margins met or topped market expectations, with the topline strength driven by AI. Ex amortization and restructuring, underlying GPM was 76.6%, down slightly QoQ on a higher mix of lower-margin ASICs.

Leverage (Total Debt/LTM Adj. EBITDA) fell to 2.1, back to pre-deal levels, suggesting the VMware impact has been largely digested within two years.

With VMware digestion largely complete, investors are refocusing on AVGO's AI trajectory:

a) Hyperscaler capex, especially Google: Hyperscalers are the ultimate buyers of AVGO's custom AI ASICs, so their capex directly shapes AI expectations.Dolphin Research expects combined capex at the Big Four hyperscalers (Google, Meta, Microsoft, Amazon) to approach ~$600bn in 2026 (+40% YoY), underpinning AI chip demand next year.

b) AI revenue and guide: AI revenue was $6.5bn this quarter, +$1.3bn QoQ. For next quarter, AVGO guides $8.2bn, +$1.7bn QoQ, above the $7.0–7.5bn market range.

Google is the key AI customer, and AVGO's AI revenue moves closely with Google's capex. After Q3, Google raised 2025 capex to $91–93bn (from $85bn), including sizable TPU demand. For next year, the Street now expects $135–140bn, laying a foundation for AVGO's AI growth.

c) Rising competitiveness of 'Google Gemini + Broadcom': On one hand, Google's mass-produced TPU v7 reportedly exceeds H200 on performance and approaches NVDA's B200 on some metrics. On the other, Google's Gemini is competitive vs. GPT-based models.

This shifts the discussion from a pure compute arms race to ROI. That challenges NVDA's dominance. AVGO holds roughly a 10% share in AI chips, and with TPU v7 scaling and better value-for-money, the market expects NVDA share erosion over time.

d) Customer and order progress: Three AI ASIC customers (Google, Meta, ByteDance) are in mass production and anchor AI revenue. AVGO also disclosed a 4th customer, Anthropic, with AI orders exceeding $10bn, slated for delivery in Q3 next year.

In Oct, OpenAI announced a plan with AVGO to deploy 10GW over 2026–2029. If realized, Dolphin Research estimates $100–150bn potential revenue. For now, management frames it as a framework agreement.To date, AVGO has five named customers driving next year's AI revenue. The 5th customer is expected to contribute ~$1bn in 2026.

At a $1.92tn market cap, AVGO trades at roughly 38x PE on FY2026 core after-tax operating profit (assumes +50% YoY revenue, 68.5% GPM, 8% tax). Versus peers, AVGO screens richer than NVDA (22x) and Marvell (30x), reflecting expectations that custom ASICs will take share from NVDA.

Shares cleared $350 after the Anthropic and OpenAI disclosures. The subsequent rally through $400 was supported by hyperscaler capex hikes and Gemini's strong showing.

Overall, Dolphin Research believes the stock already prices in new customers/orders and higher hyperscaler capex. The market looked for fresh customer/order disclosures or a green light for external TPU sales (with chatter that Meta may buy TPUs). Instead, management cited a $73bn AI backlog to be delivered over the next six quarters, which cooled sentiment near term.

Specifically, backing out Anthropic's prior $10bn, this quarter's additional $11bn (for delivery by end-2026), and the 5th customer's $1bn, leaves $51bn over six quarters. That implies an average of ~$8.5bn per quarter from legacy customers like Google. With Q1 AI revenue already guided to $8.2bn, it suggests minimal growth for the next five quarters.

While conservative near-term order visibility may dent sentiment, Dolphin Research remains constructive mid to long term. External customers should still have incentives to adopt Google's TPUs, easing compute supply constraints and improving pricing leverage vs. NVDA.Given today's AI chip landscape, AVGO's value-for-money should support steady share gains. Upside to AI outlook remains possible, while NVDA's high margins/share face pressure from the 'Gemini + Broadcom' combo.

See below for Dolphin Research's detailed take on Broadcom (AVGO):

I. Broadcom business overview

Recent growth has come from AI and the VMware consolidation. Hence, custom AI ASICs and VMware pricing changes are in focus.1) Semiconductor solutions: Growth is led by AI demand from Google, Meta, and ByteDance, while non-AI remains subdued on downstream softness.2) Infrastructure software: VMware consolidation lifts software to nearly 40% of revenue. Pricing resets at VMware supported revenue, but that effect is fading.

II. Consolidated results: steady growth on AI

2.1 Revenue

Broadcom (AVGO) posted Q4 FY2025 revenue of $18.0bn (+28% YoY), above the $17.5bn consensus. The YoY lift was driven by AI.

QoQ, revenue rose $2.0bn. AI contributed $1.3bn, the largest driver, and software also improved QoQ.

2.2 Gross profit

Gross profit was $12.25bn (+36% YoY). Reported GPM was 68%, up QoQ.

Ex amortization and restructuring, underlying GPM was 76.6%, down 17bps QoQ, as mix shifted toward lower-margin custom ASICs.

2.3 Operating expenses

Operating expenses were $4.74bn, down slightly QoQ.

Ex SBC, core opex (R&D + S&M) was $2.13bn, up $80mn QoQ. Post-VMware consolidation, opex optimization is largely complete.

2.4 Profit

Net income was $8.52bn.

Versus net income, Dolphin Research prefers core operating profit (= GP - R&D - S&M) as a truer gauge. AVGO delivered $9.7bn, up $1.6bn QoQ, mainly on AI expansion.

2.5 EBITDA

As an active acquirer, AVGO tracks Adj. EBITDA%. Dolphin Research estimates Q4 FY2025 Adj. EBITDA% at 67.8%, above the 67% guide.

On leverage, Total Debt/LTM Adj. EBITDA fell to 2.1. With AI growth driving EBITDA higher, the ratio is back to pre-VMware levels, implying the deal has been digested in two years and M&A could re-enter the playbook.

III. Segment details: faster AI QoQ, VMware digestion done

AVGO operates in Semiconductor Solutions and Infrastructure Software. With VMware consolidated, software now accounts for roughly 40% of revenue.Within these, 1) Semiconductor: networking, wireless, storage connectivity, broadband, industrial & other. 2) Infrastructure software: VMware, CA, Symantec, Brocade, etc.

3.1 Semiconductor solutions

Q4 FY2025 semiconductor revenue was $11.07bn (+34.5% YoY). Growth was led by AI, with non-AI largely stable.

1) AI

AI remains the core growth engine. AI revenue was $6.5bn, +$1.3bn QoQ, with growth re-accelerating.

Current AI revenue comes from Google, Meta, and ByteDance. With hyperscalers lifting capex, AVGO expects Q1 AI revenue of $8.2bn, up $1.7bn QoQ.

AVGO's ASIC roster includes five disclosed customers: Google, Meta, ByteDance, Anthropic, and a 5th customer (~$1bn), all set to contribute next year. As for OpenAI's 10GW plan with AVGO, while it could translate into $100–150bn of revenue, it currently appears to be a framework agreement.

Near term, watch the production ramps of Google's TPU v6 and v7. Anthropic and the 5th customer's ~$1bn will start shipping in H2 next year, implying a 'low-then-high' pattern for AI in FY2026.

Management also cited a $73bn AI backlog to be delivered over the next six quarters, which cooled sentiment in the short term.

Backing out Anthropic's prior $10bn, this quarter's additional $11bn (for delivery by end-2026), and the 5th customer's $1bn leaves ~$51bn over six quarters. That equates to ~$8.5bn per quarter for legacy customers like Google. With Q1 AI guided to $8.2bn, it implies little growth in the subsequent five quarters.

Medium to long term, Dolphin Research believes external customers have incentives to adopt Google's TPUs, addressing compute shortages and improving bargaining power vs. NVDA. With a strong value-for-money proposition, AVGO can keep gaining share, and could lift its AI outlook over time. Broader TPU shipments would further strengthen AVGO's AI position and erode NVDA's share.

2) Non-AI

Non-AI semiconductor revenue was $4.6bn (+1.3% YoY), stable overall.

Non-AI spans enterprise storage, broadband, wireless, and industrial & other. Broadband recovered steadily and wireless was flat, while other end-markets fell amid a tentative enterprise recovery.

3.2 Infrastructure software

Infrastructure software revenue was $6.94bn (+19% YoY), driven by VMware integration and the shift from perpetual to subscription.

Software comprises VMware and the legacy CA, Symantec & Brocade stack. Legacy software has been steady at roughly $2.0bn per quarter, so VMware is the swing factor.

Dolphin Research sees two key VMware levers: financial digestion of the deal and the shift from perpetual to subscription. Based on segment trends, we estimate VMware contributed roughly $4.7bn this quarter. Over 60% of former license users have moved to subscriptions. As penetration rises, software should still grow, but without the M&A-like surge.

With leverage down to 2.1, VMware has been largely absorbed. AVGO no longer discloses VMware in detail, and AI is now the primary focus.

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Related coverage by Dolphin Research on Broadcom (AVGO):

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