[Broadcom Earnings Outlook] Options Market Turns Bullish! The Key Battle Is in the "Guidance" Rather Than Actual Results—What Are the 3 Metrics to Watch?

A major supplier of custom AI accelerators, network semiconductors, and infrastructure software$Broadcom (AVGO.US)$ is scheduled to announce its fiscal 2026 third-quarter earnings after 5:00 a.m. Japan time on September 3 (after the close of regular trading in U.S. Eastern Daylight Time on September 2).

Market consensus is largely aligned regarding the company's third-quarter performance itself. The focus this time is on whether the company can address concerns surrounding funding for AI infrastructure investments while maintaining high profit margins, and further raise its growth outlook for the AI business.

Fiscal 2026 Third Quarter: Market Expectations

- Revenue is$29.444 billionforecast. Year-on-year85% increase, quarter-on-quarterup 33%, meeting the company's guidance of$29 billionfigure.

- Non-GAAP gross margin is74.1%forecast. Year-on-year,down 4.2 percentage points, and quarter-on-quarterdown 3.0 percentage points, marking the fifth consecutive quarterly decline.

- Non-GAAP operating margin is66.7%forecasted. Year-over-year,up 1.2 percentage points,while quarter-over-quarter it0.5 percentage pointsdeclines.

- Non-GAAP net income isforecast at $16.01 billion.Year-over-year increase of91%, quarter-over-quarter2% decrease.

3 Key Points to Watch

1. How much will Q4 AI semiconductor sales grow?

$Broadcom (AVGO.US)$ has previously projected that Q3 FY2026 AI semiconductor sales would beover $16 billion, a more than 200% increase year-on-year,while maintaining its full-year target of $56 billion.

Q1 AI semiconductor sales were$8.4 billion, and Q2 was$10.8 billion. Q3 is proceeding as per the company's plan$16 billionAssuming it lands at this level, the Q4 revenue required to achieve the full-year target is approximately$20.8 billion.

Therefore, if the Q4 outlook isaround $21 billionit would merely indicate that the previous growth trajectory has been largely maintained, making it difficult to characterize as a significant upside surprise.In contrast, an outlook exceeding $22 billion would serve as a stronger signal that growth in the AI business is still accelerating toward fiscal 2027.

An even more significant catalyst could be the outlook for fiscal 2027. Management currently indicates that AI semiconductor sales for that fiscal year will exceed$100 billionand by 2027, approximately10 gigawatts (GW) worthThe company has reaffirmed its shipment plans. However, shipments are expected to be weighted toward the second half of the fiscal year.

As the revenue run rate heading into the end of fiscal 2026 continues to accelerate, simply"over $100 billion"reiterating the previous forecast may lack sufficient catalyst potential to broaden the upside for the stock price.。Whether the outlook for fiscal 2027 will be effectively raised is likely to be one of the key focal points of this earnings briefing.

2. Can profit margins be maintained amid the rapid growth of custom XPUs?

$Broadcom (AVGO.US)$ In its AI business, the revenue mix is gradually shifting toward custom XPUs. The gross margin for custom XPUs is lower compared to high-margin AI networking products and infrastructure software.

AI networking products accounted for approximately 40% of AI semiconductor revenue in the second quarter. Management indicated that as shipments of custom XPUs expand, the share of AI networking products will normalize to around30%in the long term. Meanwhile, the company-wide non-GAAP gross margin for the third quarter is expected to decline from 77.1% in the second quarter to74.1%.

The key point here is74.1%The key question is whether we are near the bottom. If Q4 AI semiconductor sales exceed $21 billion and the gross margin remains around 74%, it would demonstrate that Broadcom is maintaining strong operating leverage, even as its product mix rapidly shifts toward XPUs.

Conversely, if the gross margin declines to72～73%, downward pressure on FY2027 EPS forecasts could begin to mount, even if AI-related sales remain exceptionally strong..

The infrastructure software business, including VMware, could become a critical factor in offsetting margin compression. The company expects Q3 sales in this segment to rise 31% year-over-year to approximately$8.9 billion,marking a significant increase from $7.2 billion in Q2. If the high-margin software business maintains its resilience, it should be able to absorb, to some extent, the downward pressure on margins caused by the fast-growing AI hardware business.

3. How much credit enhancement will Broadcom provide to support AI growth?

Financing for AI infrastructure investment has emerged as a new factor influencing the valuation of $Broadcom (AVGO.US)$ .

In June, Broadcom established the "AI XPV Platform" in partnership with Apollo Global Management and Blackstone. The platform aims to deploy over 20GW of AI computing capacity by 2028, leveraging Broadcom's XPU and networking technologies. The first phase totals$35 billionsoand plans to secure over 1GW of computing capacity for Anthropic.。

The company also disclosed a five-year backstop agreement covering customer lease obligations in this initial phase. The maximum potential exposure is $29 billion. Exposure increases with the deployment of AI racks and decreases as lease payments are made. In the event of customer default, Broadcom has remedies such as assuming the lease agreements or selling the AI racks serving as collateral.

Investors want to confirm whether this credit enhancement mechanism is limited to the first phase or will become a standard condition across the entire AI XPV Platform in the future.

Bloomberg reported that Broadcom isnegotiating another AI-focused financing package that includes over $60 billionin debt. The total value could reach up to $100 billion when combining multiple tranches, with proposals including Broadcom guaranteeing a portion of the senior secured debt. However, Broadcom has not confirmed these negotiations.

The core question is clear: To what extent will future growth in the AI business be supported by funds raised by customers themselves, and to what extent will it require credit enhancement or financial support from Broadcom?This ratio is crucial for assessing the quality of AI revenue and the company's risk exposure.

Post-earnings price moves priced in by the options market

Broadcom's earnings announcement is scheduled for after 5:00 AM JST on September 3. Therefore, US market options expiring on September 2, which cease trading at 5:00 AM JST on September 3, cannot cover the earnings release. The primary focus for earnings trading will be US market options expiring on September 4, which cease trading at 5:00 AM JST on September 5.

Positioning in the options market is leaning slightly bullish, but this does not guarantee the direction of the stock price. In the strike price range of $325 to $412.50, open interest for US market calls expiring on September 4 (ceasing trading at 5:00 AM JST on September 5) stands at approximately 42,600 contracts, while put open interest is around 38,100 contracts, resulting in a put/call open interest ratio of0.62. Trading volume also shows call dominance, with approximately 28,200 call contracts compared to about 20,600 put contracts,calls leadingit was.

Summary: Three leading indicators more important than actual results

In Broadcom's upcoming earnings report, management's future outlook is likely to be more significant than the Q3 actual results themselves.

The three leading indicators to watch closely are as follows:

1. FY2026 Q4AI semiconductor sales forecast

2. Regarding AI semiconductor sales forecasts for fiscal 2027Framework for outlook

3. For the fourth quarter of fiscal 2026,Gross margin outlook

It is not just about the upside surprise in AI sales, but also about what level of profit margins and capital risk will be required to achieve that growth. This earnings report serves as a venue to verify both the"quantity"and"quality"of Broadcom's AI growth story.

Source: moomoo, public market filings

-moomoo News Baitoku

This article uses machine translation in part

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