I keep hitting the buy button on Broadcom (NASDAQ:AVGO | AVGO Price Prediction) because Hock Tan is running a chip company with the cash mechanics of a software business, and my retirement account wants to own that trade for years. Wall Street is nervous about AI capital spending eating free cash flow across the sector. Broadcom is answering that worry with a receipt every 90 days.
The Cash Machine Doing the Talking
In fiscal Q2 2026, Broadcom generated $10.262 billion in free cash flow, or 46% of revenue. Full fiscal 2025 free cash flow came in at $26.914 billion, up 38.63% year over year. Capital expenditures ran just $623 million for the full year against $27.5 billion in operating cash flow. That is a semiconductor company converting revenue to owner cash at software-like ratios, and it is why I keep adding.
Hock Tan spelled it out on the June call: “Broadcom achieved record revenue, operating profit and free cash flow in Q2 driven by accelerating growth in AI semiconductor revenue and strong operating leverage.” Adjusted EBITDA margin hit 69% of revenue. Operating margin printed 67%. Those are toll-road numbers, the kind software businesses print.
Backlog That Underwrites the Dividend
The second reason my finger keeps hovering: visibility. Broadcom entered 2026 with an AI backlog exceeding $73 billion, and Q2 alone booked $30 billion in AI orders against $10.8 billion shipped. Q3 AI revenue is guided to $16.0 billion, up over 200% year over year, and Tan reiterated a goal to exceed $100 billion in AI semiconductor revenue in 2027. Add in the $30 billion-plus Apple custom AI chip deal running through 2031 and I can see the shape of the cash flows funding my dividend checks for years.
That dividend, by the way, just marked its 15th consecutive annual increase since fiscal 2011. Q2 dividends paid: $3.1 billion. Q1 buybacks: $7.8 billion. This company is returning cash while investing in a decade-long AI ramp.
The VMware Ballast
The third pillar is VMware. Infrastructure Software delivered $7.178 billion in Q2 at a 93% gross margin, with ARR growth of 17%. That recurring software cash effectively subsidizes the 2nm R&D bill without diluting shareholder returns. It is the operational stabilizer Wall Street undervalues.
Why Not the Obvious Names
Retirement money asks about NVIDIA (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). I own some NVIDIA. AMD I have skipped because its AI revenue trajectory sits near $5 billion versus Broadcom’s $10.8 billion in Q2 alone, and I want the custom-silicon franchise that Google, Meta, OpenAI, and Anthropic have all contracted for gigawatts of compute.
The Risk I Am Not Ignoring
Customer concentration is real. A handful of hyperscalers drive the AI segment, and a P/E of 61 leaves no room for a stumble. The stock is already down from $495 at the Q2 filing to $378.16 today. That drawdown is precisely why I am adding. The 8 consecutive EPS beats tell me operational execution is intact while the multiple compresses.
As long as this company converts nearly half its revenue into free cash and returns it, I will keep buying every dip the market hands me.
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