Broadcom Inc (NASDAQ: AVGO) leadership indicated it expects to ship approximately $350 billion worth of AI semiconductors to customers over the next two years. The company also stated its expectation to sustain operating margins even as the shifting product mix dilutes gross margins.

Guidance and Margin Outlook

During a conference call, Broadcom’s chief executive outlined the firm’s strategic outlook for artificial intelligence hardware. The management team highlighted a significant revenue pipeline, projecting total AI semiconductor shipments of $350 billion within a 24-month horizon.

Regarding profitability dynamics, the CEO addressed the impact of changing product compositions. While the mix of products is expected to dilute gross margins, the company maintains confidence in its ability to sustain overall operating margins. This suggests that operational efficiencies or other margin-positive factors are anticipated to offset the gross margin pressure from the evolving product portfolio.

• Projected AI semiconductor shipments: $350 billion
• Timeframe for shipments: Next two years
• Margin stance: Operating margins expected to be sustained despite gross margin dilution

Broadcom (NASDAQ: AVGO) CFO expects fourth-quarter consolidated gross margin to be approximately 73%, a decline from the 78% recorded in the same period last year.

The margin contraction reflects increased capital expenditures as the company invests in semiconductor manufacturing capacity. Management anticipates capital expenditures of $1.4 billion for the quarter.

Updated Guidance and Long-Term Outlook

The revision to the FY26 guidance reflects continued strong demand for custom AI accelerators and networking solutions. While the Q4 revenue guidance of approximately $34.8 billion missed analyst estimates of $35.03 billion, the long-term AI trajectory remains robust.

Management expects AI semiconductor revenue to accelerate to $21.7 billion in the fourth quarter, up 236% year-over-year. This quarterly figure contributes significantly to the revised annual total.

Third-Quarter Results Recap

The guidance update came alongside third-quarter results where adjusted earnings per share (EPS) reached $3.32, beating estimates of $3.24. Revenue hit $29.591 billion, surpassing the $29.362 billion consensus. Despite the beats, shares fell 5.07% in after-hours trading on soft Q4 general guidance.

The adjusted EPS of $3.32 marks a 96.45% increase from the $1.69 per share reported in the same period last year. Total revenue expanded by 85.50% year-over-year from $15.952 billion.

AI Revenue Surge and Cash Flow

AI semiconductor revenue was a primary driver, reaching $16.7 billion in the quarter. This represents a 221% year-over-year increase and a 54% quarter-over-quarter growth. CEO Hock Tan noted that demand for custom AI accelerators and networking remains very strong.

Operationally, Broadcom generated approximately $14.2 billion in cash from operations and $13.7 billion in free cash flow during the quarter. The company exited the period with approximately $24 billion in cash and cash equivalents.

What the Numbers Show

The upward revision of FY26 AI revenue guidance to $58 billion, despite a miss in Q4 overall revenue estimates, underscores the disproportionate weight and growth velocity of the AI segment. With Q4 AI revenue projected at $21.7 billion against a total company revenue guidance of ~$34.8 billion, AI is expected to constitute over 62% of total sales in the fourth quarter. This deep concentration highlights that while non-AI segments may face headwinds (leading to the Q4 miss), the AI engine is accelerating faster than previously modeled, justifying the higher annual ceiling.