Broadcom Inc. (NASDAQ: AVGO) delivered a strong Q2. The real signal is the Q3 guidance: revenue of $29.4 billion, up 84% year-over-year and well above consensus, driven by an AI semiconductor segment that is accelerating rather than plateauing.
Revenue for the fiscal second quarter ended May 3 came in at $22.19 billion, up 48% from $15.0 billion a year ago and slightly above the $22.12 billion consensus. Non-GAAP diluted EPS of $2.44 beat the $2.40 estimate, rising 54% from $1.58. The beat was modest on the top line. The composition matters more.
AI semiconductor revenue hit $10.8 billion, up 143% year-over-year and above the company's own forecast. That segment now represents 72% of total semiconductor solutions revenue of $15.0 billion, which itself grew 79% from $8.4 billion. The non-AI semiconductor business was essentially flat. The entire growth story rests on custom AI accelerators and AI networking. Infrastructure software revenue of $7.18 billion grew just 9%, a steady but unexciting contributor.
The margin story shows real leverage. Adjusted EBITDA margin reached 69% of revenue, up from 67% a year ago. Free cash flow was $10.3 billion, or 46% of revenue, up from $6.4 billion. Operating cash flow of $10.5 billion more than covered capital expenditures of $231 million and the $3.1 billion dividend. Broadcom ended the quarter with $19.6 billion in cash, up from $14.2 billion sequentially.
Management guided Q3 revenue to approximately $29.4 billion, implying sequential growth of roughly 32% from Q2. The non-GAAP operating margin is expected to hold at 67%, and adjusted EBITDA margin at 68%. That guidance implies Q3 AI semiconductor revenue of $16.0 billion, per CEO Hock Tan's commentary, representing over 200% year-over-year growth. The company did not raise its full-year guidance. The Q3 number alone implies a run rate that would put FY2026 revenue well above $100 billion.
The buyback pace slowed in Q2: $600 million in repurchases versus $7.85 billion in Q1. This is not a signal of diminished confidence. The company spent $4.9 billion on debt repayments in the first half, and the cash balance grew by $3.45 billion. Management is prioritizing balance sheet flexibility ahead of what looks like a sustained capex cycle from hyperscale customers.
The takeaway is straightforward. Broadcom's AI business is not just growing, it is accelerating. The Q3 guidance implies AI semiconductor revenue will more than double sequentially from Q2's $10.8 billion to $16.0 billion. That ramp suggests the company's custom ASIC and networking products are winning share in hyperscaler deployments at a pace that outstrips even optimistic internal forecasts. The non-GAAP operating margin guidance of 67% indicates management expects to absorb that volume without margin degradation, a testament to the operating leverage in the model.
The risk is concentration. AI now dominates semiconductor revenue, and the non-AI portion of the business is essentially flat. If hyperscaler capex cycles turn, Broadcom's revenue growth would reverse sharply. For now, the data points in one direction: accelerating demand, expanding margins, and a balance sheet that can fund both organic investment and shareholder returns.