Broadcom's Squeeze Play: Regulatory Heat in Brussels, Supply Bottlenecks in the Fab

Broadcom battles EU scrutiny of VMware licensing and supply chain strain as it targets $115B AI chip revenue by fiscal 2027.

Broadcom finds itself navigating a rare double bind. On one flank, European antitrust officials are digging deeper into how the company reshaped VMware's licensing after its $61 billion takeover. On the other, the chipmaker's own supply chain is struggling to keep pace with the extraordinary demand pouring in from hyperscale customers. Both forces converge on the same question: can the company convert its towering AI ambitions into delivered revenue before investor patience runs dry?

The stock's recent trajectory reflects that tension. Shares closed yesterday at EUR 294.00, leaving them down 1.2% since the start of the year, and they now sit roughly 32% below their 52-week high of EUR 429.60. In European trading, the price stood at EUR 296.25 at one point — about 31% off that peak. The 200-day moving average of EUR 318.24 looms overhead as a key technical threshold; a sustained move below it would risk cementing a downtrend.

Two Fronts, One Balance Sheet

The regulatory inquiry, first reported by Bloomberg, has EU officials questioning European cloud providers in detail about how easily VMware software can be replaced and whether certification terms became unfair following the acquisition. The probe remains in a fact-finding phase, but it could escalate into a formal investigation or interim measures. That prospect matters because the software unit serves as a dependable cash generator funding Broadcom's capital-intensive chip development. If Brussels were to restrict software bundling or price increases, a critical pillar of profitability would come under strain.

Meanwhile, the semiconductor side is delivering the growth that keeps the broader story aloft. Management recently raised its long-term targets, now projecting AI semiconductor revenue of $115 billion for fiscal 2027 — up from a prior $100 billion forecast. By fiscal 2028, that figure is meant to double to $230 billion. CEO Hock Tan unveiled the custom Jalapeno chip developed with OpenAI, alongside planned shipments of the TPU 8i to Google and additional accelerators. If deliveries for large-scale projects — including five gigawatts of computing capacity for Anthropic in 2027 — stay on schedule, the chip business could generate enough momentum to push the valuation back toward earlier highs.

What the Analysts Are Saying

Wall Street's view has shifted in recent weeks. Piper Sandler resumed coverage on September 10 with a Buy rating and a $460 price target. Macquarie upgraded the stock to Outperform on September 3 with a $490 target, arguing that the risks of major customers developing chips in-house are already priced in after the pullback. Truist Securities trimmed its 12-month target on September 3 from $550 to $520 while keeping its Buy rating — a modest haircut rather than a change of heart.

Those reassessments followed a mixed earnings picture. Fiscal third-quarter 2026 results set records and, according to CNBC, beat analyst estimates. Total revenue of $29.59 billion topped expectations. But the outlook for the current quarter disappointed: guidance of $34.8 billion came in below the $35.03 billion consensus. That miss weighed on sentiment, and the stock has shed 6.5% since the company lifted its fiscal 2027 AI chip revenue forecast just over a week ago.

The Supply Chain Chokepoint

At Goldman Sachs' technology conference on September 8, Broadcom emphasized the unabated momentum in infrastructure projects but pointed explicitly to ongoing supply chain constraints. That admission cuts to the heart of the investment case. Demand from major platform operators for custom AI silicon is unquestionably strong. If Broadcom cannot ship those orders on time because of insufficient manufacturing capacity, quarterly targets risk being missed again.

The bull case rests on the idea that current weakness is a temporary growth dip. If bottlenecks ease gradually, the company stands before a substantial earnings leap, with hyperscalers deeply tied to Broadcom's custom chip and networking solutions. Higher shipment volumes should keep margins elevated, underpinning the bullish price targets. In that reading, the soft near-term guidance amounts to a delay, not a structural breakdown.

The bear case draws on concrete operational hurdles. Should supply constraints persist for multiple quarters, customers may stretch out orders or look elsewhere. The bar Broadcom has set for coming years is extraordinarily high, and any inability to meet it due to component shortages invites further downgrades. Pressure on the valuation would intensify if growth in the traditional, non-AI business stalls while AI deliveries remain hamstrung.

Legal Escalation and Technical Risks

On the regulatory side, the danger is that the European Commission moves from preliminary information-gathering to a formal probe and imposes interim measures. That could bring licensing changes or meaningful fines, while European cloud providers might accelerate efforts to reduce their dependence on VMware, weakening customer retention.

The chip business carries its own technological and operational risks. Delays in major projects with OpenAI or Google, or further margin erosion in the chip segment from high manufacturing costs, would leave nothing to offset potential setbacks in software.

What to Watch

Near-term, shareholders have a predictable inflow: the board declared a quarterly cash dividend of $0.65 per share for the third quarter. The pivotal fundamental catalyst, however, will be the next quarterly report, when Broadcom must demonstrate that supply restrictions are manageable and that the transition into its targeted growth phase is underway.

Until then, the stock's direction hinges on defending current support levels. As long as the area around the present price holds and fiscal 2027 expectations remain intact, consolidation ahead of the next push looks likely. A decisive break below the 200-day moving average would signal that the downtrend is taking hold. Market participants will also keep watch on regulatory signals from Brussels and the pace of the share buyback program — and whether operating cash flow stays stable enough to sustain the current tempo.