The AI hardware sector is currently witnessing a “new king ascends the throne” scenario—while the market is still debating NVIDIA’s growth rate, Broadcom (AVGO) has opened the floodgates with an explosive financial report: FY25Q3 AI semiconductor revenue surged by 63% year-on-year, with a backlog of orders amounting to $110 billion acting as a heavy ballast,and they boldly stated that FY26 growth will far exceed this year’s 63% (JP Morgan even raised it to 125%!). This move has directly transformed the “ASIC narrative” from a niche discussion in the tech circle into a hot topic in the capital market.
It is important to note that ASICs (Application-Specific Integrated Circuits), which were once considered a “backup” to GPUs a few years ago, have now become a hot commodity that giants like Google and Meta are scrambling to order. Broadcom has managed to carve out a niche in NVIDIA’s territory, even being humorously dubbed the “invisible champion of the AI hardware industry.” What logic lies behind this? Where does the confidence of $110 billion in orders come from?
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Broadcom’s “hard power”:
Not just a 63% growth rate, but the certainty of $110 billion in orders
When mentioning Broadcom, many still hold the impression of a “traditional chip giant,” but tracking its recent business trajectory reveals that this company has quietly transformed into a “key player” in the AI hardware race through ASIC technology. The Gelonghui Research Institute noted a detail in 2024: the share of Broadcom’s custom chips in Google’s data centers surged from 10% to 30%, leading to the judgment that “the trend of ASICs replacing GPUs is accelerating,” and Broadcom’s performance is now validating this judgment.
1. The “AI code” in the financial report: growth exceeds expectations, orders secure the future
Every number in the FY25Q3 financial report shouts “AI is core”:
– Revenue exceeded expectations, with AI contributing significantly: total revenue of $15.95 billion (up 22% year-on-year, exceeding market expectations by $110 million); adjusted EPS of $1.69 (up 36% year-on-year, exceeding expectations by $0.02). Among them, AI semiconductor revenue reached $5.2 billion, a staggering 63% year-on-year increase, accounting for nearly 50% of semiconductor business, serving as a growth engine for ten consecutive quarters.
– $110 billion in orders as ballast, more reliable than mere talk: half of the backlog orders are in the semiconductor business, and the proportion of AI-related orders is significantly higher than non-AI. This means that even if market fluctuations occur, these orders can sustain growth for 1-2 years, which is much more substantial than those “pie-in-the-sky” forecasts.
– Q4 guidance is even more aggressive, maximizing profitability: total revenue is expected to reach $17.4 billion (up 24% year-on-year, exceeding expectations by $350 million), with AI semiconductors projected to hit $6.2 billion (up 66% year-on-year); adjusted EBITDA margin is 67%, exceeding expectations by 1 percentage point. This kind of “growth + profit” dual acceleration is quite rare among high-growth tech stocks.
The only minor hiccup is that the gross margin decreased by 0.7% quarter-on-quarter, but don’t panic—this is not due to a decline in profitability, but mainly because the proportion of XPU (custom AI accelerators) and wireless business has increased (both have slightly lower margins), coupled with a slight decrease in the proportion of high-margin software business, which is a short-term structural issue and not a serious flaw.
2. Business breakdown: XPU encroaching on GPU territory, network infrastructure as a moat
Broadcom’s ability to establish a foothold in the AI hardware sector relies on a combination of “custom chips + network infrastructure,” which is also its confidence to challenge NVIDIA:
– XPU (custom AI accelerators): accounting for 65% of AI revenue, currently encroaching on GPU territory
Broadcom has customized at least two generations of XPU products for major clients like Google, Meta, and TikTok. The longer clients use them, the more familiar they become with the accompanying software tools, making them more willing to migrate computing tasks from GPUs to XPUs. Management stated it plainly: “XPU surpassing GPU is not an overnight process, but the trend is clear.”
As the first player to adopt the XPU model ASIC, Broadcom’s accumulation of core technology is not something that can be achieved overnight; R&D investment has consistently increased by over 15% for five consecutive years, creating a moat that is not easily breached.
– AI networking: from single rack to cross-data center, positioning in all scenarios
As large model clusters expand to 100,000 nodes, networking becomes a bottleneck, and Broadcom’s solutions are tailor-made for this scenario:
– For single racks, the “Battle Axe 5” switch can support 512 XPU nodes, far surpassing the traditional NVLink’s 72 GPU nodes;
– For cross-rack, the “Battle Axe 6” reduces the network hierarchy from three layers to two, decreasing latency by 30% and saving 25% on electricity costs;
– For cross-data centers, the newly released Jericho4 router can connect giant clusters of 200,000 nodes, a capability unique in the industry.
Some are concerned that Ethernet might be replaced by new technologies, but Broadcom directly poured cold water on this: “Ethernet has been around for 25 years, with latency reduced to below 250 nanoseconds, and it is open-source and cost-effective, so giants like Google have no need to switch.”
– Software business (VMware): a “cash cow” with a 93% gross margin
Software revenue reached $6.8 billion (up 17% year-on-year), accounting for 43% of total revenue, with gross margins soaring to 93% and operating profit margins at 77%, all thanks to VMware’s effective integration. The newly launched VCF9.0 has been purchased by 90% of its 10,000 large clients, and in the next two years, it can generate additional revenue through value-added services like security and disaster recovery.
3. Non-AI business: recovering in a U-shape, not hindering the main line’s rapid growth
Non-AI semiconductor business Q3 revenue was $4 billion (no growth quarter-on-quarter), and the recovery is indeed slow, but there is no need for excessive anxiety: broadband business grew by 8% quarter-on-quarter, which is a bright spot; wireless and industrial businesses remained flat, while enterprise networking and server storage continued to decline. Management described this as a “U-shaped recovery,” which may not see significant improvement until mid-2026. Although it is currently lagging behind, it cannot overshadow the rapid growth of the AI business.
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Why has ASIC suddenly become popular? Three major logics rewriting the AI hardware landscape
Broadcom’s strength essentially signals that the ASIC sector has transformed from “laboratory technology” into a “money-making machine.” The logic behind this has long been foreshadowed at several key points:
1. Large models have “split up,” creating opportunities for ASICs
In the early days, large models pursued “universality,” and GPUs became the first choice due to their strong ecosystem; however, that is no longer the case. Large models are now “splitting up”—financial models focus on risk control, medical models specialize in imaging, and each industry has different model requirements. At this point, the customization advantage of ASICs becomes apparent, optimizing for specific models and achieving 30%-50% higher computational efficiency than GPUs. Broadcom’s XPU is seizing market share in vertical fields based on this.
2. Giants have figured out the “cost equation”
AI computing costs for companies like Google and Meta now account for 25% of total operating costs. Whoever can help them save money will have a voice. ASIC solutions can reduce unit computing costs by 30%-40%. For instance, after using Broadcom’s XPU, Meta’s large model inference costs dropped by 35%. This is no small amount, and any company would place more orders.
3. $110 billion in orders = insurance for growth
Half of these orders are in the semiconductor business, and many are AI-related, often involving long-term contracts of 2-3 years. This effectively locks in growth for the next 1-2 years, providing a stark contrast to those manufacturers relying on quarterly orders to get by, making Broadcom’s strategy a reassuring sign for investors.
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What to watch next? Three nodes determine market height
Broadcom is currently on a strong upward trajectory, but how the market will evolve depends on these key nodes:
1. Delivery of OpenAI’s $10 billion order: This order is due for delivery in Q3 2026. If it can be delivered early or in larger quantities, FY26 growth might even reach 70%, opening up valuation space.
2. The speed at which XPU encroaches on GPU: Currently, XPU accounts for 15% of clients’ AI computing power. If this can be increased to over 25% in 2026, the logic of “ASIC replacement” will be firmly established, and the sector sentiment can rise to another level.
3. The recovery pace of non-AI business: If enterprise networking and server storage can rebound in Q1 2026, it will create a “dual drive” of “AI + non-AI,” enhancing profitability resilience.
Risks cannot be ignored: If major clients cut AI budgets (for example, if Google suddenly slows down investments) or if NVIDIA offers targeted low-priced GPUs, it could complicate matters for Broadcom. However, in the short term, the $110 billion in orders and technological barriers are sufficient to withstand these storms.
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Gelonghui Research Institute: From tracking to validation, the opportunities for ASICs have long been signaled
From capturing the AI computing trend in 2023 to hinting in 2024 that “ASICs may become the second growth curve,” the Gelonghui Research Institute’s tracking of the tech sector has never been about chasing trends. For instance, regarding Broadcom, we noted a detail back in Q2 2024: the second-generation XPU customized for TikTok had a reasoning speed 40% faster than GPUs, prompting us to suggest in our exclusive member circle that “this company is worth watching.”
This explosion of Broadcom once again proves that opportunities in tech stocks are always hidden within the chain of “technological breakthroughs → customer purchases → performance realization.” For investors, rather than getting caught up in “who will be the next NVIDIA,” it is better to look at practical companies like Broadcom that “have orders and growth certainty”—after all, in the capital market, real performance is always more reliable than stories.
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Note: The companies mentioned in this article are for case analysis only and do not constitute any investment recommendations. The market carries risks, and investment should be approached with caution; please ensure independent judgment before making decisions.