“We expect the non-GAAP tax rate for Q1 and fiscal year 2026 to increase from 14% to approximately 6.5% due to the impact of the global minimum tax and shift in geographic mix of income compared to that of fiscal year 2025.”

Why this grade

Management had guided the FY2026 non-GAAP tax rate to approximately 6.5%, but on the next call revised the expected rate upward to approximately 16.5%. Since a higher tax rate is unfavorable, this revision represents a worsening of the previously committed level before the fiscal year came due.

Deviation basis: Tax rate guidance moved by roughly 10 percentage points (6.5% to 16.5%), a magnitude too large and directionally unfavorable to express as a fair percentage change.

In context

“w moving to guidance. Our guidance for Q1 is for consolidated revenue of $19.1 billion, up 28% year on year. We forecast semiconductor revenue of approximately $12.3 billion, up 50% year on year. Within this, we expect Q1 AI semiconductor revenue of $8.2 billion, up approximately 100% year on year. We expect infrastructure software revenue of approximately $6.8 billion, up 2% year on year. For your modeling purposes, we expect Q1 consolidated gross margin to be down approximately 100 basis points sequentially, primarily reflecting a higher mix of AI revenue. As a reminder, consolidated gross margins through the year will be impacted by the revenue mix of infrastructure software and semiconductors and also product mix within semiconductor. Expect Q1 adjusted EBITDA to be approximately 67%. We expect the non-GAAP tax rate for Q1 and fiscal year 2026 to increase from 14% to approximately 6.5% due to the impact of the global minimum tax and shift in geographic mix of income compared to that of fiscal year 2025. That concludes my prepared remarks. Operator, please open up the call for questions. Operator: Thank you. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we come to our first question. Vivek Arya: Our first question will come from the line of Vivek Arya with Bank of America. Your line is open. Hock Tan: Thank you. Just wanted to clarify, Hock, you said $73 billion over eighteen months for AI. That's, you know, roughly $50 billion plus for fiscal 2026. For AI. I just wanted to make sure I got that right. And then the main question, Hock, is that there is sort of this emerging debate about customer-owned tooling. You know, your async customers potentially wanting to do more things on their own. How do you see your XPU content and share at”