Broadcom's Custom-Chip Grip Faces Its First Real Test From Beijing

SASAC weighs whether Broadcom's switches crowd out Huawei and H3C, as the stock trades 28% below its 52-week high.

Chinese regulators have opened a probe into how deeply Broadcom's networking switches are embedded in state-controlled data centers, adding a fresh layer of geopolitical risk to a stock already trading well below its peak. The inquiry, run by the State-owned Assets Supervision and Administration Commission (SASAC), centers on whether the U.S. chipmaker's dominant position is crowding out domestic suppliers — a question that cuts to the heart of Beijing's push for technological self-reliance.

Preliminary findings reported by the Financial Times suggest the answer is uncomfortable for China's ambitions: as much as 90% of the state entities examined rely on Broadcom switch solutions. SASAC is now weighing how far that stranglehold discourages the adoption of homegrown alternatives such as Huawei, H3C Technologies and Ruijie Networks. Huawei underscored the competitive stakes just last Saturday by unveiling its own networking products tailored to AI data centers.

A Narrow but Symbolic Scope

The practical reach of any action appears limited. Private technology firms — Alibaba and TikTok parent ByteDance among them — fall outside the remit, and there is no sign that equipment already installed must be ripped out. Measures, if they come, would likely target future procurement: informal guidance on state-funded purchases or gradual swaps during routine modernization cycles. No written directive has surfaced, and neither Broadcom nor SASAC responded to requests for comment.

Beijing's broader agenda explains the scrutiny. The government wants roughly 80% of its semiconductors sourced domestically by the start of the next decade, with AI and digital infrastructure flagged as priorities under the 15th Five-Year Plan adopted in 2026. Hardware from certain U.S. rivals is already barred from state-backed data centers.

The Custom-Silicon Engine Still Humming

Set against that regulatory noise, Broadcom's core franchise looks sturdy. JPMorgan estimates the global market for custom AI ASICs could reach up to $70 billion this year, with Broadcom capturing more than 80% of it. Together with rival Marvell, the company controls roughly 90% of the segment. Its client roster reads like a who's who of AI infrastructure — Alphabet, Meta Platforms, OpenAI and Anthropic — and the Google relationship in particular offers durable visibility: a five-year supply agreement for Tensor processors runs through 2031 and covers advanced 3nm and 2nm manufacturing nodes.

That long-term embedding in hyperscaler architecture is a structural advantage, not a cyclical one. As operators of massive server farms tune their infrastructure with bespoke silicon to manage power draw and compute throughput, budgets keep shifting toward application-specific designs.

Demand forecasts reinforce the trend. BOCOM International raised its projection for worldwide AI accelerator shipments today, forecasting 34.51 million units in 2027 and 52.34 million in 2028, citing improved order-book visibility. The brokerage views leading chip names, Broadcom included, as attractively positioned at current valuations.

Valuation Gap and a Bullish Price Target

The stock, however, has been under pressure. In today's session it slipped 1.3% to EUR 308.00, dragged down alongside the wider tech sector by rising U.S. Treasury yields. Yesterday's close came in at EUR 308.25, down 1.2%. The shares now sit 28% below their 52-week high of EUR 429.60.

Part of that gap traces back to roughly two weeks ago, when Broadcom lifted its AI revenue guidance — a move followed by a 2.7% decline since. The company has since raised its AI semiconductor revenue forecast to about $115 billion for fiscal 2027. Analyst William Kerwin of Morningstar reaffirmed a fair value of $650 per share, pointing to the networking division and custom AI accelerators for large customers as the pillars of long-term earnings power, even as lower-margin product categories and geopolitical friction add to the risk ledger.

Consensus remains largely bullish, underpinned by sustained hyperscaler spending on network infrastructure. The open question is whether Broadcom can defend its custom-processor stronghold against both rising competition and the slow grind of Chinese policy — a two-front challenge that will define the next chapter of its AI story.