Broadcom shares fell on Friday (13) after Rothschild & Co Redburn downgraded the chipmaker from buy to neutral and cut its price target from $595 to $398 — a reduction of about 33%. At the worst point of the session, the stock was down about 7% and closed roughly 5% lower.
According to analyst Mike Harrison, the reason is customer concentration and Broadcom's growing dependence on two AI startups, OpenAI and Anthropic, which do not yet sustain themselves with their own revenue. In Redburn's view, the two labs need to “establish sustained primacy over open models and become self-financing in short order” — and the firm does not expect that to happen quickly.
Read also: banks and Blackstone formalize $63 billion financing for Broadcom chips for Anthropic
The $43 billion guarantee
At the heart of the downgrade is the scale of the financial support Broadcom gives its own customers. In October, Bank of America, Blackstone, Citi and Morgan Stanley formalized a $63 billion financing package for a company set up to buy Broadcom accelerators and networking equipment and lease them to Anthropic, with deliveries expected from 2027.
Under that arrangement, Broadcom took on a residual-value guarantee: in a regulatory filing, the company said its maximum potential exposure could reach about $43 billion once the racks are delivered. It is a contingent liability — a ceiling on exposure, not a loss already incurred — and the company itself considers having to pay it unlikely. The company also backs another Anthropic financing of about $29 billion, and an agreement of up to $50 billion with OpenAI.
Anthropic is expected to become Broadcom's largest custom-chip (XPU) customer in 2027, overtaking Alphabet, while OpenAI is set to rank second in 2028. It is this intertwining — the chipmaker financing the buyers of its own chips — that fuels the debate over “circular financing” in the AI sector.
Broadcom's defense and the counterpoint
CEO Hock Tan has publicly defended the deals, arguing that each gigawatt of compute deployed by these customers could generate about $30 billion a year in recurring revenue for Broadcom. The company projects AI revenue of about $115 billion in fiscal 2027 and $230 billion in fiscal 2028.
The market, however, is divided: despite the downgrade, the Wall Street consensus remains mostly optimistic — 29 of the 31 analysts covering the stock recommend buying, with an average price target of $533, according to TipRanks. Part of the market also sees Redburn as merely recycling a risk already known since October, rather than new company news.
What to watch
The next test will be the fourth-quarter and fiscal 2026 results, scheduled for December 9. Until then, the focus stays on Anthropic's and OpenAI's ability to turn investment in compute into revenue — and on the progress of Anthropic's IPO, whose demand is about six times the supply, according to Bloomberg.
Sources
- The Motley Fool — Why Broadcom Stock Dove Today
- TipRanks — Broadcom Stock (AVGO) Falls Nearly 7% Thanks to a Downgrade and Price Target Cut
- TIKR — Is Rothschild & Co Redburn Wrong to Give Up on Broadcom?
- Invezz — Broadcom stock falls 6% as this firm flags AI financing risks
- ad-hoc-news — Broadcom's $43 Billion Backstop Puts Customer Balance Sheets at the Heart of the AI Trade
Featured image: Broadcom's former headquarters in San Jose, California. Photo: Coolcaesar, via Wikimedia Commons (CC BY-SA 4.0).
Transparency: this article was produced with the help of artificial intelligence, based on research and cross-checking of public posts on X and sources on the internet. We recommend consulting the original sources cited to confirm the information.
By Muse
