Broadcom’s share price plunged 15.5% in a single week, yet analysts still see the chipmaker’s earnings soaring in the years ahead.
Key points
- Broadcom’s share price fell sharply amid a sector‑wide chip rout, not because of company‑specific news.
- The firm posted strong quarterly growth, with AI chip revenue up more than 200% and a long‑term AI revenue target of $115 billion for fiscal 2027.
- Analysts expect normalized EPS to more than quadruple by fiscal 2028, implying a forward P/E well below Broadcom’s historical average.
- A $72 billion backstop tied to Anthropic’s AI rack leases represents a sizable contingent liability, though Broadcom rates the default risk as low.
Broadcom (AVGO) lost 15.5% of its market value in the week ending Nov 5, according to a Yahoo Finance report, even though the company released no new information of its own. The decline mirrored a broader sell‑off in semiconductor stocks after Intel issued a weaker‑than‑expected fourth‑quarter revenue outlook and political worries about tighter AI regulations surfaced following the U.S. midterm elections.
Intel’s guidance of $15‑$16 billion for Q4, well below the roughly $17 billion analysts had forecast, sparked a sell‑off that spread to peers such as Nvidia and AMD. The sector’s dip was amplified on Nov 4 and 5 by concerns that data‑center construction could slow, sending Broadcom down another 10.4% on Nov 5 alone.
Sector weakness drives Broadcom's drop
Despite the market reaction, Broadcom’s own third‑quarter numbers showed robust growth: revenue rose 86% to $29.6 billion, with AI‑related chip sales surging 221% to $16.7 billion. The company reported a committed contract value of $179.2 billion as of Aug 2 and reiterated a goal of $115 billion in AI revenue for fiscal 2027.
Wall Street analysts project that Broadcom’s normalized earnings per share (EPS) will climb to $11.67 for the fiscal year that ended Nov 1—a 70% increase from the $6.82 reported for fiscal 2025—and could reach $30.37 by fiscal 2028. At a forward price‑to‑earnings (P/E) ratio of under 19× on Nov 2, the stock sits well below its five‑year average of 24×, suggesting valuation headroom if the earnings trajectory holds.
Strong quarterly results and ambitious AI targets
A notable risk highlighted in the article is Broadcom’s $72 billion backstop arrangement tied to AI rack financing for the AI startup Anthropic. Should Anthropic default and the leased racks be sold for less than 72.5% of the outstanding lease balance, Broadcom would cover the shortfall—up to roughly $43 billion at peak exposure. The company, however, characterises the likelihood of such a payout as low.
Given the discounted valuation and the intact order backlog, some market observers recommend a staged buying approach rather than a single large purchase. The upcoming December earnings release will be pivotal, with expectations of $21.7 billion in AI revenue and gross margins near 73%, as well as confirmation that no additional backstop commitments are required.
Valuation, backstop risk, and the December earnings test
Investors will be watching closely for any deviation from the projected AI revenue target and for signs that the broader chip‑sector pressures are easing. A stronger-than‑expected December report could validate the bullish EPS forecasts and reinforce Broadcom’s position as a key supplier to AI infrastructure.
Reader questions
Why did Broadcom’s stock drop despite solid quarterly results?
The decline was driven by a broader sell‑off in semiconductor stocks after Intel issued a weak outlook and investors grew nervous about potential tighter AI regulations following the November midterm elections, which pulled down related chips such as Nvidia and AMD.
What is the nature of Broadcom’s backstop with Anthropic?
Broadcom backs a financing vehicle that purchases its AI racks and leases them to Anthropic. If Anthropic defaults and the racks are sold for less than 72.5% of the lease balance, Broadcom would cover the shortfall, up to about $43 billion at peak exposure, though the company says the chance of a payout is low.
What earnings expectations do analysts have for Broadcom?
Analysts forecast normalized EPS of $11.67 for the fiscal year ending Nov 1, a 70% rise from the prior year, and project EPS of $30.37 by fiscal 2028. The forward P/E ratio is currently under 19×, well below the five‑year average of 24×.
Source: finance.yahoo.com
