How Broadcom's stock can surge and overcome 'the biggest dislocation in the market'

By Britney Nguyen

Broadcom's stock has gone nowhere this year, but an analyst thinks it and other quality chip stocks like Nvidia will soon start trading at higher valuations

Broadcom's stock is down for the year.

Broadcom's stock has had a rough year, but one analyst is getting enthusiastic as Anthropic's initial public offering takes shape.

The artificial-intelligence startup filed IPO paperwork on Monday, and D.A. Davidson analyst Gil Luria said rival OpenAI will follow suit and can raise even more money. Both companies are working with Broadcom (AVGO) to secure computing power, and successful IPOs should allow the custom chip maker to meet its lofty financial targets in the coming years, according to Luria.

On the latest earnings call in September, Broadcom CEO Hock Tan said the company had secured enough supply to set its AI revenue outlook to $115 billion for its fiscal year 2027, which kicks off next month. The following fiscal year, Tan said AI chip revenue is expected to double again to $230 billion.

Despite its ambitious AI-related targets, Broadcom's stock is down 2% on the year as the PHLX Semiconductor Index SOX has surged 60%. Part of that underperformance is likely tied to worries over whether the AI startups' IPOs will take off, Luria said, noting that Anthropic and OpenAI are setting up to become Broadcom's largest customers for application-specific integrated circuits, or ASICs. As skepticism grew in recent weeks over the financial viability of both companies, that sentiment weighed on Broadcom and its chip peers, he said in a note to clients.

In Luria's view, "the biggest dislocation in the market is between" major chip makers like Nvidia (NVDA), Broadcom and Micron Technology (MU) "trading as if the cycle is already over," while the rest of the AI-exposed hardware sector is "trading as if the cycle may continue."

While Luria said he understands how the market reached this divide, he expects Nvidia, Broadcom and Micron to eventually trade at higher valuation multiples similar to the rest of the semiconductor complex as strong demand for AI hardware continues.

In its S-1 filing, Anthropic said it has five-year master equipment leases with the chip maker for data-center hardware worth about $161.2 billion, not including interest, over that period.

Broadcom's stock trades at 16 times estimates for earnings per share in 2027, which Luria said makes it seem as though the chances for both IPOs "are near zero." Therefore, there is "significant upside if those deals both materialize."

On that, Luria moved the stock to a buy rating from his prior neutral stance and raised his price target to $400 from $350, representing upside of 21.5% from its Monday closing price of $329.17.

Broadcom's stock was up about 3% in Tuesday morning trading.

Meanwhile, Broadcom announced a partnership on Monday afternoon with Bank of America (BAC), Blackstone (BX), Citigroup (C) and Morgan Stanley (MS) for a $63 billion financing structure that will support Anthropic's deployment of networking equipment and Google's (GOOGL) (GOOG) tensor processing units. Broadcom has co-developed TPUs with Google for more than a decade.

Under the five-year contract, the banks will support the purchase of chips and infrastructure, which Anthropic will lease to run its AI. Through its role providing residual value support, Broadcom's "peak exposure" to the arrangement will be $43 billion in the first year, William Blair analyst Sebastien Naji said in a note to clients. That will then decline through the rest of he deal, he added.

Broadcom called the partnership its "largest strategic compute capacity agreement to date," Naji said, referring to a conversation with the company's management.

Naji noted that the deployments with Anthropic are already counted in Broadcom's expected shipments for next year, and only make up about half of what the AI startup will need in 2027. Therefore, he said he expects more financing deals.

Truist analyst William Stein said the $43 billion presents "some, but minimal risk" to Broadcom.

In his view, liability "is only relevant under what seem to us to be highly pessimistic circumstances," such as if Anthropic falls short of its lease payments to the special purpose vehicle, or if the structure can't find other buyers for the AI chips and other technology involved in the deal.

"Considering the wide use of TPUs by AI developers, these conditions seem remarkably unlikely to us," Stein said in a note to clients.

-Britney Nguyen

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10-27-26 1102ET