Joining me on today's call are Hock Tan, President and CEO, Charlie Kawwas, President, Semiconductor Solutions Group, and Ram Velaga, President, Infrastructure Software Group. In our fiscal Q2 2026, total revenue reached a record $22.2 billion, up 48% year-on-year, above our guidance on strength in AI semiconductors. Q2 operating margin was a record 67%, and adjusted EBITDA was a record 69% of revenue, which was above our guidance. Even as our revenue scales up massively, driven by AI, our operating and EBITDA margins remain strong and stable.
Turning to semiconductors, Q2 revenue was a record $15 billion, as I said before, as we grew 79% year-on-year. Driving this growth was AI semiconductor revenue at a record $10.8 billion, up 143% year-on-year and above our outlook. In the second half of 2026, we expect AI semiconductor revenue to double from the first half we shipped this year. Consistent with this trend, in Q3, we expect AI semiconductor revenue to accelerate to $16 billion, up over 200% year-on-year.
For the full year 2026, we expect to achieve AI semiconductor revenue of $56 billion, up approximately 180% from fiscal 2025. We expect this momentum to continue into fiscal year 2027 and reiterate our AI semiconductor revenue guidance to be in excess of $100 billion. We expect AI semiconductor revenue growth to continue in fiscal 2028, based on the following initiatives with our six core customers. We have a contractual commitment to deploy 1.3 GW in 2027 as part of the larger 10 GW that by 2029 agreement we announced last year.
| Metric | Period | Current guidance |
|---|---|---|
| Consolidated revenue | Q3 FY2026 | $29.4B, up 84% YoY |
| Semiconductor revenue | Q3 FY2026 | ~$20.5B, up 124% YoY |
| AI semiconductor revenue | Q3 FY2026 | $16.0B, up over 200% YoY |
| Infrastructure software revenue | Q3 FY2026 | ~$8.9B, up 31% YoY |
| Non-AI semiconductor revenue | Q3 FY2026 | ~$4.5B, up 12% YoY |
| Consolidated gross margin | Q3 FY2026 | ~74% on higher AI revenue mix (not a structural semi-margin change) |
| Operating margin | Q3 FY2026 | ~67%, flat sequentially |
| Adjusted EBITDA margin | Q3 FY2026 | ~68% of revenue |
| AI semiconductor revenue | FY2026 | $56 billion, up ~180% |
| AI semiconductor revenue | FY2027 | Reiterated in excess of $100 billion (~10 GW) |
| Non-GAAP tax rate | Q3 / FY2026 | ~16% |
| Metric | YoY | Note |
|---|---|---|
| Total revenue | +48% | AI semiconductor strength across XPUs and networking. |
| AI semiconductor revenue | +143% | Insatiable XPU and networking demand; bookings over $30 billion in the quarter. |
| Semiconductor revenue | +79% | AI-driven acceleration to a record $15 billion (68% of total revenue). |
| Infrastructure software revenue | +9% | Strong VMware bookings; ARR up 17%; VCF 9.1 momentum. |
| Non-AI semiconductor revenue | +6% | Broadband, server storage and enterprise networking up; path toward full cyclical recovery. |
| Operating income | +52% | Record $14.9 billion; operating margin 67.3%, up 200 bps YoY as opex stayed flat. |
| Semiconductor operating margin | +460 bps | Strong operating leverage; margin 62%. |
| Consolidated gross margin | -230 bps | Semiconductors became a larger proportion of product mix. |
| Free cash flow | record $10.3B (46% of revenue) | Strong cash generation on scaling AI revenue. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| 2027 AI revenue outlook | Line of sight over $100 billion | Reiterated over $100 billion (~10 GW), on the same 2x trajectory as 2H 2026; 2028 expected substantially higher | — |
| Customer commitments | Verbal gigawatt targets | Contractual multi-generation agreements (Google, Anthropic +5 GW, Meta 3 GW, OpenAI 1.3 GW 2027) disclosed via 8-Ks | — |
| AI financing / XPU platform | Not present | New AI XPU platform with Apollo/Blackstone to deploy over 20 GW through 2028; first $35 billion tranche launching via Apollo | — |
| Rack vs chip debate | System/rack-sale discussion | Definitively a chips-only business - 'no rack, only chips' | — |
| AI networking mix | ~One-third to 40% of AI revenue | Almost 40% this quarter (stars aligned); normalized level closer to 30% | — |
| CFO leadership | Kirsten Spears CFO | Kirsten Spears retiring June 12; Amie Thuener incoming CFO | — |
| Next-gen networking | Tomahawk 6 (100 Tbps) shipping | Taping out 200 Tbps (Tomahawk 7-class) switch this quarter; leading on CPO, 1.6 Tb DSPs, Jericho 3/4 | — |