Broadcom

Phase A — Understand the Business

Lens 1 · Company Overview

Two businesses fused by Hock Tan's M&A machine: Semiconductor Solutions ($15.0B Q2 FY26, +79% Y/Y, ~68%) and Infrastructure Software ($7.2B, +9%, ~32%). The semi half is two engines — custom AI accelerators (XPUs) co-designed with hyperscalers, and the dominant merchant AI networking franchise (Tomahawk/Jericho/optical). Software = the VMware roll-up ($69B, 2023) + CA + Symantec. The model: not an edge innovator but a franchise consolidator — buy mission-critical high-switching-cost tech, cut non-core R&D, re-price to the top ~1,000 customers, harvest cash. Named customers: Google (TPU), Meta (MTIA), OpenAI (first custom chip 2027), Anthropic (1GW 2026→3GW 2027) + two unnamed — "six mega-deals." Investable identity: the arms dealer to the companies trying to escape NVIDIA, with a software annuity bolted on for cash stability.

Lens 2 · Supply Chain

Fabless, one layer below NVIDIA. Upstream: TSMC (3nm/5nm) + CoWoS (the same chokepoint NVIDIA/AMD queue for), HBM from SK Hynix/Samsung/Micron, EDA from Synopsys/Cadence. Downstream: unlike NVIDIA (sells finished GPUs/racks), Broadcom sells the design + silicon to the hyperscaler, who owns the system and the margin on integration. NVIDIA monetizes the rack; Broadcom monetizes the wafer and hands integration (and margin) to the customer. Capex trivially small — $231M Q2 vs $10.5B operating cash — TSMC carries the capital intensity. The asset-light mirror of the fab-heavy names in this sweep.

Lens 3 · Competitive Advantages

1. Custom-silicon co-design lock-in — once a hyperscaler co-designs a multi-year XPU roadmap, switching means re-architecting chip + interconnect + software; $30B+ AI bookings vs $10.8B shipped in Q2 is the backlog proof.
2. AI networking dominance — ~40% of Q2 AI revenue; as clusters scale past 100k accelerators the fabric is the bottleneck, and this is the one layer Broadcom out-positions NVIDIA (whose NVLink/Spectrum is the merchant alternative). It directly contests the "system" layer NVIDIA calls its widening moat.
3. Software switching costs — VMware ~93% gross margin, 79% segment op margin, ARR +17%.
4. vs NVIDIA — NVIDIA's edge is generality (CUDA) + rack integration; Broadcom's is specificity (a chip tuned to one workload, cheaper per useful FLOP for inference). The SemiAnalysis call NVIDIA's own file cites — inference share 90%→20-30% by 2028, Google already ~58% of custom-accelerator market — is the Broadcom bull case stated in NVIDIA's forensic file.

Lens 4 · Segments

Phase B — Measure Performance

Lens 5 · Earnings Result (Q2 FY26, June 3 2026)

Revenue $22.19B, +48%; AI semi $10.8B, +143% above guide. Non-GAAP EPS $2.44 vs ~$2.32 (beat ~5%). 67% op margin, 69% adj-EBITDA margin, FCF $10.26B (46% of revenue). Guidance: Q3 ~$29.4B (vs ~$28.5B Street), Q3 AI $16.0B (>200% Y/Y), FY26 AI $56B, FY27 AI >$100B reiterated. Stock reaction: −12.6% next session (June 4), ~$280B erased — beat-and-fall: the FY-AI number was left unchanged and software was soft, so a stock priced for an AI raise sold off on its absence. A structural echo of the NVIDIA pattern (DeepSeek-day −17%/−$600B) — elevated AI expectations make even good prints a downside source.

Lens 6 · Earnings Calls (sentiment trend)

Hock Tan escalated from measured to near-evangelical: XPU/networking demand "simply insatiable," $30B+ Q2 AI bookings, six mega-deals, an "Apollo" first tranche ~$35B. The tell: reiteration, not expansion, of FY27 >$100B — disciplined enough to be credible, but the market front-ran a raise. Everything anchored to a small set of named whales — confidence on the call, concentration risk in the 10-K.

Lens 7 · Comps

Lens 8 · Stock-Price Catalysts

Dec 2024 ~+24% — SAM disclosure ($60–90B AI by 2027, 3 hyperscalers, 1M-XPU clusters) launched the re-rate; AVGO doubled, crossed $1T. June 4, 2026 −12.6% / ~−$280B — beat-but-no-AI-raise + soft software. Macro/correlated drawdowns (DeepSeek Jan'25, tariffs Apr'25) hit it with the whole complex. The pattern is identical to NVIDIA's: up-moves from AI disclosure, down-moves from AI expectations.

Phase C — Judge People & Books

Lens 9 · Management (Hock Tan)

The most accomplished serial acquirer in semis — the "Broadcom Playbook" across LSI/Brocade/CA/Symantec/VMware. FY25 returned $13.6B ($11.1B dividends + $2.5B buyback), 15th consecutive dividend raise. Large equity stake, performance-weighted comp — strong alignment. The distinct tension vs NVIDIA: the model runs on debt — VMware pushed long-term debt to ~$63.8B, and ~$20B/yr FCF splits between dividends and paydown rather than NVIDIA's near-pure buyback. Red flags: (1) the growth algorithm requires an ever-larger next acquisition (accretion treadmill); (2) VMware per-core re-pricing alienated customers, software grew only +9% — if churn accelerates the "annuity" weakens (it contributed to the June-4 drop); (3) post-deal R&D cuts maximize near-term margin but raise a long-term innovation question outside AI. Best-in-class capital allocator, but levered, acquisition-dependent, customer-unfriendly software playbook.

Lens 10 · Forensic Red Flags (QoE vs NVIDIA — the crux)

1. Goodwill/intangibles + amortization add-back — HIGHEST FLAG, key contrast with NVIDIA. Three decades of deals buried the balance sheet in goodwill/intangibles; non-GAAP EPS adds back billions of acquisition amortization quarterly. NVIDIA has almost none to add back (its gap is SBC; D&A "small and clean"). Like-for-like, NVIDIA's headline earnings are higher quality; Broadcom's are flattered by amortization add-backs representing real capital spent. (Exact goodwill/amortization figures n/a — seed from the 10-Q.)
2. Debt $63.8B — genuine leverage/refi exposure NVIDIA (net cash) doesn't carry.
3. Customer concentration — AI dominated by ~3 deploying customers; Apple ~17–20% of total. Rhymes with NVIDIA's "three buyers = 54%" — and Broadcom's biggest XPU customers are NVIDIA's biggest GPU customers, so a single hyperscaler pause hits both at once.
4. SBC — material, but buyback+dividend offset dilution (as with NVIDIA).
5. AI-revenue disclosure — amber — "AI semiconductor revenue" is a management-defined metric, not a clean GAAP segment; $56B/$100B are guidance, not booked backlog.

Forensic bottom line: Broadcom is the most dangerous competitor bulls underestimate — the named beneficiary of NVIDIA's named vulnerability — but its earnings quality is lower, not higher: where NVIDIA's risk sits off the income statement on clean cash earnings, Broadcom's sits inside the earnings construction (amortization add-backs, $64B debt, wider GAAP gap) plus it shares NVIDIA's hyperscaler concentration. The pair is doubly-levered to one event — a hyperscaler capex slowdown takes both.

Phase D — Project & Stress-Test

Lens 11 · Forward Projection (EPS, next 3 fiscal years)

Bottom-up; Broadcom FY ends early Nov (FY26 = Nov'25–Nov'26).

Lens 12 · Bull vs Bear

Bull. Broadcom is the structural winner of the one thing NVIDIA's own forensic file admits it loses — commodity inference to custom silicon (90%→20-30% by 2028). It's growing AI +143% off a backlog of $30B+ bookings and six multi-year hyperscaler mega-deals, it owns the networking layer NVIDIA must defend, and a 79%-margin VMware annuity funds it all. FY27 >$100B AI is the number; if it lands, the premium is earned. Bear (impairment vectors). (1) The premium multiple (45× EV/EBITDA, 24.5× forward) on one-third NVIDIA's ROE leaves no room for a merely-excellent quarter — the −12.6% June-4 drop proved it. (2) Earnings quality is structurally lower than NVIDIA's: amortization add-backs flatter non-GAAP, $64B debt, a self-defined AI metric. (3) It shares NVIDIA's hyperscaler concentration in the same customers — doubly-levered to one capex cycle, with the added single-customer-program reset risk. Pre-mortem (2027): Google re-bids its TPU program or brings more in-house, an XPU mega-deal resets, VMware churn accelerates as enterprises finish escaping the per-core repricing, and the FY27 $100B AI number slips to $80B — on a 24.5× forward multiple priced for the raise, the stock halves, and the $64B debt turns a growth story into a deleveraging one. Contrarian view: the market treats Broadcom as the "safer" AI bet than NVIDIA (it has software, it has the custom-silicon future) — but the data say the opposite: it's the higher-multiple, lower-ROE, more-levered, lower-earnings-quality name, exposed to the same customers. The variant perception is that Broadcom is the riskier of the two, not the hedge.

Lens 13 · Devil's Advocate

A custom-silicon "win" is a single-customer dependency: if Google re-bids or re-insources one program, an entire revenue line resets overnight — there's no CUDA-style switching cost protecting Broadcom, because the customer owns the stack. The growth algorithm is an accretion treadmill that needs an ever-bigger next acquisition; at $1.9T that next deal barely moves the needle. The non-GAAP EPS is flattered by billions of amortization that is real money spent. $64B of debt in a higher-rate world is a deleveraging anchor. And the whole AI number is management-defined guidance, not a booked, auditable segment. Strip the amortization add-back and the leverage, share NVIDIA's exact customer concentration, and pay a premium to NVIDIA for it — that's the bear case in one breath.

Lens 14 · Management Questions

1. What is the exact quarterly acquisition-amortization add-back to non-GAAP EPS, and what's GAAP AI-segment profitability? 2. Of FY27's >$100B AI target, how much is booked backlog vs guidance? 3. What's customer concentration in AI semi (top-3 %)? 4. If a hyperscaler re-bids or in-sources an XPU program, what's the revenue-line reset risk? 5. VMware churn/net-retention since the per-core repricing? 6. Debt paydown path and refi schedule on the $64B? 7. What's the next acquisition needed to sustain the growth algorithm? 8. Networking attach rate as clusters standardize? 9. How exposed are you to the same hyperscaler capex cycle as NVIDIA? 10. R&D intensity in non-AI semi post-cuts?