Broadcom Inc. has delivered another powerhouse quarter, with its Q2 FY2025 earnings revealing just how deeply AI and software are embedded in the company’s growth strategy. With total revenue hitting a record $15 billion, up 20% year-on-year, Broadcom’s momentum is being driven by two clear engines: AI in its Semiconductor Solutions segment and the rapidly scaling Infrastructure Software business.
AI Semiconductors: A Relentless Growth Machine
The Semiconductor Solutions segment is riding a massive AI wave. In Q2, Broadcom generated $4.4 billion in AI semiconductor revenue, a 46% year-on-year jump—marking the ninth straight quarter of AI growth.
The performance isn’t just about volume, it’s about breadth and innovation:
- Custom AI accelerators (XPUs) posted double-digit growth.
- AI networking revenue surged over 170%, now making up 40% of AI revenue. Broadcom’s Ethernet-based solutions have become the default for hyperscalers thanks to products like Tomahawk switches, Jericho routers, and NICs.
- Demand for Broadcom’s Tomahawk 6, with its massive 102.4 Tbps capacity, is helping hyperscalers build bigger clusters with fewer tiers, improving performance while lowering power and latency.
Looking ahead, Broadcom forecasts Q3 AI semiconductor revenue of $5.1 billion, a 60% increase year-over-year. And the pipeline is deep: the company expects three major customers to each deploy 1 million AI-accelerated clusters by 2027, largely focused on training frontier models. With inference needs heating up, Broadcom sees a potential acceleration in XPU demand starting in the back half of 2026.
Notably, Broadcom is betting that Ethernet will win the AI networking protocol wars, offering a scalable, open-standard alternative to proprietary tech. Optical interconnects are next on the roadmap, with a transition expected in the next couple of years.
Infrastructure Software: VCF Subscriptions Take Off
While AI grabs headlines, Broadcom’s Infrastructure Software segment quietly delivered $6.6 billion in revenue, up 25% year-over-year, exceeding guidance. This segment now accounts for 44% of total company revenue, and its margin profile is outstanding.
Key drivers:
- Broadcom is successfully converting VMware’s vSphere users to full VCF (VMware Cloud Foundation) subscriptions.
- Over 87% of its top 10,000 customers have made the switch, building modern private clouds that support both containerized workloads and AI applications.
- Operating margins hit 76%, up from 60% a year ago, thanks to disciplined VMware integration.
- Recurring revenue is rising fast, and Broadcom expects Q3 software revenue to hit $6.7 billion, a 16% increase.
This conversion process is long but strategic. With most contracts spanning three years, Broadcom is only halfway through its customer renewal cycle, leaving another 12 to 18 months of reliable subscription momentum.
Outlook: Solid Growth, Strong Margins, Smart Strategy
Broadcom’s playbook is working. The company expects Q3 consolidated revenue of $15.8 billion, up 21% year-on-year, with continued strength in both AI semiconductors and infrastructure software.
The only wrinkle? A slight dip in gross margins as the mix shifts toward XPUs, which carry lower margins than some other segments. But the tradeoff is intentional: XPUs are critical to Broadcom’s AI strategy and long-term growth.
Final Take
Broadcom isn’t just participating in the AI boom, it’s helping to shape it. From custom silicon to next-gen Ethernet networking and hyperscale partnerships, the company is positioned as a foundational player in the AI infrastructure buildout.