Broadcom's AI Ambitions Face a Valuation Reality Check

Broadcom shares soar on AI deals with Google & Anthropic, but a downgrade highlights valuation risks. AI revenue hit $8.4B last quarter, with a $100B target by 2027.

Broadcom Inc. shares continue to trade near record highs, propelled by blockbuster artificial intelligence deals and surging revenue. Yet a single analyst downgrade has cast a spotlight on the immense valuation and hidden risks that accompany this breakneck growth. The company's strategic moves, from securing decade-long contracts to appointing a new CFO from Alphabet, paint a picture of a firm aggressively consolidating its position as a cornerstone of AI infrastructure.

The foundation of investor optimism is a confirmed supply agreement with Google for Tensor Processing Units (TPUs) and networking components, extending through 2031. This cements Broadcom's role as the primary design partner for Google's custom AI chips. Complementing this, an expanded pact with AI startup Anthropic will provide the company access to approximately 3.5 gigawatts of TPU-based computing capacity starting in 2027.

Analysts are bullish on the financial potential. Mizuho's Vijay Rakesh estimates the Anthropic partnership alone could generate about $21 billion in AI revenue for Broadcom in 2026, with potential to reach $42 billion the following year. CEO Hock Tan has publicly outlined an even more ambitious target: over $100 billion in AI chip revenue by 2027, backed by secured supply capacity and concrete customer plans.

Recent quarterly results provide a solid base for these projections. For its fiscal first quarter, Broadcom reported total revenue of $19.31 billion, a 29.5 percent year-over-year increase. AI semiconductor revenue more than doubled, soaring 106 percent to $8.4 billion and now constituting 44 percent of total company sales. Management anticipates second-quarter revenue of approximately $22 billion.

However, Seaport Research Partners struck a note of caution, downgrading the stock from "Buy" to "Neutral" on April 8. Analyst Jay Goldberg cited valuation concerns, noting the stock trades at a price-to-earnings ratio of 65 based on trailing earnings following a 78 percent rally over the past twelve months. The stock's Relative Strength Index (RSI) reading of 85.6 further indicates an overbought condition.

More critically, Seaport pointed to a regulatory filing suggesting Broadcom may need to participate in financing the data center infrastructure for Anthropic. Goldberg views this as a sign of mounting industry pressure, where chipmakers might have to offer financial guarantees to secure orders, introducing risks beyond mere valuation.

This skeptical view remains an outlier. Of 49 analysts covering the stock, 47 maintain a "Buy" rating. Bank of America reiterated its positive stance, emphasizing Broadcom's solidified role as Google's key TPU partner, which alleviates recent concerns about competition. J.P. Morgan and Rosenblatt Securities reaffirmed their buy recommendations with price targets of $500 each, while Mizuho and BofA Securities have targets of $480 and $450, respectively. The average analyst price target stands at $471.55.

In a parallel leadership development, Broadcom announced that Amie Thuener, currently Chief Accounting Officer at Alphabet, will assume the role of Chief Financial Officer starting June 12, 2026. This move deepens the personnel ties between the two companies. Separately, ahead of the annual shareholder meeting in Palo Alto this April, board member Eddy W. Hartenstein is set to step down from his position.