Analyst(s): Richard Gordon and Daniel Newman
Publication Date: March 10, 2025
Broadcom’s Q1 FY 2025 earnings report highlights the company’s continued momentum, driven by strong demand for AI semiconductor solutions and expanding infrastructure software capabilities. The successful integration of VMware further strengthened Broadcom’s position in the enterprise software space, while AI investments by hyperscalers fueled growth in custom accelerators and connectivity solutions.
What is Covered in this Article:
- Broadcom’s Q1 FY 2025 financial results
- AI semiconductor growth driven by XPUs and hyperscaler demand
- Expansion in AI networking with next-gen Ethernet and switch developments
- VMware’s subscription transition accelerating enterprise software revenue
- Q2 FY 2025 guidance points to continued AI and cloud momentum
The News: Broadcom Inc. (NASDAQ: AVGO) announced its Q1 FY 2025 results, reporting a quarterly record of $14.9 billion in revenue, surpassing consensus estimates by 2.1% and marking a 25% year-on-year (YoY) increase. The semiconductor solutions segment contributed $8.21 billion (+11% YoY), while infrastructure software revenue surged 47% YoY to $6.7 billion. Non-GAAP operating income climbed 44% YoY to $9.8 billion, exceeding consensus estimates by 5%, with an operating margin of 65.9% (Q1 FY 2024: 57.1%). Non-GAAP net income rose 49% YoY to $7.8 billion, while non-GAAP diluted earnings per share (EPS) increased 45% YoY to $1.60, outperforming the consensus estimate of $1.50.
“Broadcom’s record first-quarter revenue and adjusted EBITDA were driven by both AI semiconductor solutions and infrastructure software,” said Hock Tan, President and CEO of Broadcom Inc. “We expect continued strength in AI semiconductor revenue of $4.4 billion in Q2, as hyperscale partners continue to invest in AI XPUs and connectivity solutions for AI data centers.”
Broadcom Q1 FY 2025: AI and Software Power 25% Revenue Growth
Analyst Take: Broadcom’s Q1 FY 2025 earnings reaffirm its strength as a leading force in the technology sector, delivering a triple beat with standout performance in AI semiconductors and infrastructure software. Despite concerns over geopolitical risks and tariffs, Broadcom’s record revenue and strong guidance indicate continued momentum, particularly in AI networking and custom silicon designed for hyperscalers.
Broadcom’s XPU Strategy Gains Traction in AI Race
While Nvidia CEO Jensen Huang has downplayed the potential of custom AI chips (XPUs), arguing they lag behind Nvidia’s GPUs by several years, Broadcom’s AI accelerator approach is proving to be a compelling alternative for hyperscalers. AI semiconductor revenue saw an impressive 77% YoY increase, fueled by demand for custom XPUs and AI networking solutions. The company has taken a significant leap forward with the industry’s first 2-nanometer AI XPU featuring 3.5D packaging, marking a milestone in next-generation AI hardware.
Broadcom is scaling XPU cluster deployments at an aggressive pace to support the growing demands of hyperscaler AI infrastructure. CEO Hock Tan confirmed that AI data centers are on track to reach clusters of a million XPUs by 2027. With three existing hyperscaler clients projected to create a $60–$90 billion serviceable market for XPUs and networks by FY 2027, Broadcom is also expanding its reach by developing custom AI accelerators for four additional hyperscalers.
A key factor driving this shift is the economics of XPUs – hyperscalers are increasingly prioritizing custom silicon to optimize AI workloads for cost efficiency, energy savings, and specialized performance needs. Broadcom’s strategy aligns with this trend, offering cloud providers a performance-driven alternative to traditional AI accelerators. By advancing custom AI acceleration and AI networking capabilities, Broadcom is cementing its role as a critical player in the future of hyperscale AI infrastructure.
Scaling AI Networking to Power Hyperscaler Growth
As hyperscalers push AI clusters toward the one-million-XPU milestone, Broadcom continues to enhance its networking solutions to support these high-bandwidth workloads. Hock Tan confirmed that hyperscalers are now moving toward clusters with 500,000 accelerators, necessitating higher-density, low-latency connectivity. In response, Broadcom has doubled the RAID-X capacity of Tomahawk 6 and completed the tape-out of its next-generation 100-terabit switch, which supports 200G studies at 1.6 terabit bandwidth, ensuring scalability for hyperscale AI infrastructure.
Looking further ahead, Broadcom’s long-term roadmap extends beyond 1.6 terabit networking, with Tomahawk 7 and Tomahawk 8 already in development. The company has steadily progressed from 800G to 1.6T bandwidth and is now setting its sights on 3.2T switching, reinforcing its dominance in AI data center connectivity. Decades of expertise in switching and routing continue to give Broadcom a competitive advantage as hyperscalers prioritize robust, high-performance networking to scale next-generation AI models.
VMware Integration Drives Software Growth
Broadcom’s infrastructure software revenue surged 47% YoY to $6.7 billion, largely fueled by increased revenue from VMware. The company’s transition from perpetual licenses to subscription-based revenue is over 60% complete, reflecting strong execution in its business model transformation. Adoption of VMware Cloud Foundation (VCF) has now reached 70% among Broadcom’s top 10,000 customers, signaling widespread enterprise demand for its virtualization solutions.
The infrastructure software operating margin expanded significantly, climbing from 59% to 76% year-over-year, supported by higher VMware revenue, disciplined integration efforts, and a strong focus on VCF deployment. Additionally, Broadcom confirmed that 39 enterprise customers are now leveraging VMware Private AI Foundation, a platform developed in collaboration with Nvidia to facilitate on-prem AI workloads. With ongoing expansion in subscription-based models and AI cloud solutions, Broadcom expects continued growth in its software-driven revenue stream.
Outlook: Broadcom’s Execution Continues to Deliver
For Q2 FY 2025, Broadcom projects revenue of $14.9 billion, surpassing the consensus estimate of $14.6 billion, representing 19% year-over-year growth. Adjusted EBITDA is expected to remain strong at 66% of revenue. AI semiconductor revenue is forecasted to reach $4.4 billion (+44% YoY) as hyperscalers ramp up AI workloads, while software revenue is projected at $6.5 billion (+23% YoY), driven by VMware’s subscription shift and increased enterprise AI adoption.Non-AI semiconductor revenue is expected to reach $4 billion.
Broadcom’s continued expansion into both software and XPUs highlights its leadership in AI hardware and enterprise cloud solutions. As hyperscalers increase investments in AI infrastructure, demand for Broadcom’s networking and accelerator technologies remains robust. Meanwhile, VMware’s integration strengthens its position in enterprise cloud computing. With strong momentum across AI, cloud, and enterprise software, Broadcom is well-positioned to sustain long-term growth through FY 2025 and beyond.
See the full press release on Broadcom’s Q1 FY 2025 earnings on the Broadcom website.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Broadcom’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Richard is a sought-after technology industry analyst, both as a trusted advisor to clients and also as an expert commentator speaking at industry events and appearing on live TV shows such as CNBC.
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
