Broadcom Q2 FY2026: AI Chip Surge Drives 48% Revenue Jump to $22.2B

Broadcom's fiscal second quarter is a vivid snapshot of what happens when a semiconductor giant catches a generational tailwind. The company's latest 10-Q filing for the quarter ended May 3, 2026 shows revenue and profits surging, driven overwhelmingly by demand for custom AI silicon. Let's dig into the income statement and see exactly where the growth is coming from, how the company's two business segments are performing, and what the numbers reveal beneath the headline figures.

A Revenue Engine Running on AI

Total net revenue jumped to $22.2 billion, up a remarkable 48% from $15.0 billion a year ago. The driver is no mystery: Products revenue — which includes Broadcom's chips — exploded 64% to $16.9 billion, while Subscriptions and services (largely software, anchored by the VMware acquisition) grew a more modest 13% to $5.3 billion.

The Sankey diagram makes the segment story stark. Broadcom reports two segments:

• Semiconductor solutions — networking chips, custom AI accelerators (called XPUs), broadband, and wireless. Revenue here soared 79% to $15.0 billion, and segment operating income nearly doubled (+93%) to $9.3 billion.
• Infrastructure software — VMware-led data center virtualization, mainframe, and security software. Revenue rose 9% to $7.2 billion with operating income of $5.6 billion.

The semiconductor surge is being fueled by custom AI accelerators built for hyperscalers. Broadcom has design wins with Google (its Ironwood TPUs), Meta, and more recently named customers including OpenAI and Anthropic. Management has publicly pointed to AI chip revenue potentially topping $100 billion by 2027. A telling clue sits in the balance sheet: inventory ballooned from $2.3 billion to $4.3 billion, which the filing explicitly attributes to "higher expected shipments for custom AI accelerators." When a company stockpiles inventory like that, it's signaling confidence in near-term demand.

Margins, Profits, and the Tax Story

Gross margin came in at 69%, up from 68%, while operating margin expanded impressively to 49% from 39%. That operating leverage is striking — operating income climbed 85% to $10.8 billion on 48% revenue growth, because operating expenses grew only 6%. Notably, selling, general and administrative expense actually declined slightly even as revenue surged nearly 50%, a sign of how scalable the AI chip business is once the design work is done.

Net income reached $9.3 billion, up 88%, with diluted EPS of $1.91 versus $1.03. One caveat for analysts: a chunk of the year-over-year EPS jump reflects a low tax base in the prior year. The provision for income taxes was just $120 million a year ago (a 2.4% effective rate) versus $820 million this quarter (an 8.1% rate). The unusually low prior-year tax made the year-ago comparison flatter than the underlying business alone would suggest.

It's also worth flagging stock-based compensation, which rose to $2.1 billion for the quarter and $4.3 billion year-to-date — a meaningful real cost that doesn't hit cash but does dilute shareholders.

Cash, Debt, and Capital Returns

Broadcom generated $18.8 billion in operating cash flow over the first half, up from $12.7 billion. It deployed that firepower aggressively: $6.2 billion in dividends (at $0.65/share quarterly) and $8.5 billion in buybacks. The board declared another $0.65 dividend in June.

The company still carries a hefty $64.9 billion in total debt, a legacy of its acquisition-heavy strategy (Broadcom assumed VMware notes and continues to refinance, issuing $4.5 billion in new senior notes in January 2026). Interest expense was a manageable $776 million for the quarter. Goodwill stands at $97.8 billion — larger than the company's entire balance of tangible operating assets — a reminder that much of Broadcom's value sits in past acquisitions.

The Bottom Line

Broadcom is firing on its AI cylinder while its software arm provides steady, high-margin ballast. The risks the filing flags are real — heavy customer concentration among a handful of hyperscalers, the cyclical semiconductor industry, and substantial debt. There's also a leadership change underway: longtime CFO Kirsten Spears, who signed this filing, is retiring, with Alphabet finance executive Amie Thuener stepping in. In a market where Broadcom competes with Nvidia and AMD on AI silicon and Marvell on custom chips, the custom-XPU bet is paying off handsomely — for now. Investors will be watching whether that inventory build converts cleanly into the shipments management is promising.