TLDR
- Broadcom reports Q3 earnings after market close Wednesday, with Wall Street expecting 90% EPS growth to $3.22 and revenue of ~$29.4 billion.
- AVGO stock is down 30% from its June all-time high, despite analysts projecting ~70% earnings growth this year and next.
- AI semiconductor revenue is forecast to hit $16 billion in Q3, up over 200% year-over-year.
- Google signed a deal with Marvell to design chips for its AI infrastructure, reducing a potential revenue stream for Broadcom.
- A quarterly filing revealed Broadcom could face up to $29 billion in lease obligations if data center lessees default.
Broadcom (AVGO) heads into its fiscal Q3 earnings report on Wednesday with a lot to prove. The stock is trading at $[price] and is down 30% from its June all-time high, even as analysts project earnings growth of around 70% for this year and next.
Wall Street is expecting Q3 revenue of roughly $29.4 billion, up 85% from a year ago. Adjusted EPS is forecast at $3.22, which would represent 90% growth year-over-year.
The big number investors will be watching is AI semiconductor revenue. After Q2 AI chip sales surged 143% to $10.8 billion, management has guided for approximately $16 billion in Q3. That would be more than 200% growth year-over-year and a nearly 50% jump from the prior quarter.
Much of that growth comes from Broadcom’s custom AI accelerators, known as XPUs, and its Ethernet networking products. These help hyperscalers build large AI computing clusters without relying solely on general-purpose GPUs.
Broadcom has partnerships with Meta, OpenAI, Google and Anthropic. Its work with Meta includes a next-generation 2-nanometer AI chip, while its OpenAI relationship involves a planned 10-gigawatt deployment and the recently announced Jalapeño Intelligence Processor.
The stock’s slide began after last quarter’s earnings. Broadcom narrowly beat expectations but held its $100 billion 2027 AI revenue outlook steady rather than raising it. Investors had expected an upgrade, and the stock dropped 13% the following day.
Google Taps Marvell, Raising Questions
Google, Broadcom’s biggest and longest-standing AI customer, signed a deal with Marvell Technology in August to design additional chips for its AI infrastructure. Broadcom did extend its deal with Google for the TPU chip in April, but the Marvell agreement means another supplier is now involved. That reduces the scope of potential future chip sales for Broadcom.
The TPU partnership with Google dates back over a decade, so the core relationship is intact. But the Marvell deal added to investor concern heading into Wednesday’s report.
Lease Obligations Add Another Layer of Risk
A quarterly filing also flagged that Broadcom could be on the hook for up to $29 billion in lease obligations if data center lessees default. This relates to a fund set up by Apollo and Blackstone to finance data center construction using Broadcom chips.
The arrangement has been labeled “circular financing” by some observers, casting doubt on the true strength of demand. Broadcom’s exposure is a small fraction of the total projected investment, but the disclosure still rattled the market.
On the software side, VMware continues to perform. Infrastructure Software revenue rose 9% year-over-year to $7.2 billion in Q2, and management is guiding for 31% growth to $8.9 billion in Q3, driven by strong adoption of VMware Cloud Foundation 9.1.
Broadcom has beaten earnings expectations for 21 consecutive quarters, with an average EPS surprise of 2.19% over its last four reports.
AVGO currently trades at roughly 18.9 times forward earnings for next year, just above the S&P 500 multiple, and holds a Zacks Rank #2 (Buy).
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