Broadcom (AVGO) Q1 2026 Earnings Call Transcript
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The story
Broadcom's Q1 FY2026 earnings call transcript has been published, giving the market a full look at management's commentary on its two core growth engines: AI custom silicon (XPUs for hyperscaler customers) and the ongoing VMware software integration. The company carries an annualized revenue run-rate above $60B after the VMware acquisition closed, with FY2025 full-year revenue of $63.9B representing roughly 24% YoY growth — a pace that has reset expectations across the sector.
The gross margin of 67.8% reflects the shift toward higher-margin software and recurring VMware subscription revenue, while the 36.2% net margin shows the cost of carrying acquisition-related amortization. At $4.77 diluted EPS, the earnings power is substantial, though the headline number is suppressed by deal-related charges that will gradually roll off.
The key tension in AVGO at this level is whether AI XPU revenue — driven by custom chip deals with Alphabet and Meta, among others — can sustain a growth rate that justifies the current valuation multiple, or whether the VMware integration is masking a deceleration in legacy semiconductor demand. Bulls point to a multi-year XPU roadmap with three confirmed hyperscaler customers and a software backlog that compounds. Bears note that consensus is already heavily skewed toward Buy, limiting upside surprise potential and leaving the stock vulnerable to any guide-down.
Watch Q2 revenue guidance and any update on the number of XPU design wins — management commentary on a fourth hyperscaler customer would be a material catalyst. VMware ARR conversion metrics are the secondary lever to monitor for margin trajectory.
The case — both sides
With three confirmed hyperscaler XPU customers, a growing VMware ARR conversion pipeline, and 67.8% gross margins already in hand, AVGO's earnings power trajectory supports a premium multiple that could expand further if a fourth XPU design win is disclosed on the call.
Consensus is already saturated with Buy ratings, meaning the stock needs a material beat-and-raise to move meaningfully higher, and any softness in legacy broadband or networking semiconductor demand could expose how much of the current valuation is priced on AI optionality rather than current earnings.
The house read
Leans bullAVGO faces a valuation re-rating test after Q1 FY2026 results — the question is whether 24% revenue growth and expanding software margins justify the current multiple or whether consensus Buy saturation limits further upside.
Wrong ifA Q2 revenue guide-down or commentary suggesting XPU design win momentum has stalled — particularly if a hyperscaler delays or cancels a custom chip program — would remove the primary re-rating catalyst and expose the stock to multiple compression given elevated valuation.
Published read · research, not advice