Key Takeaways
- Broadcom fell 7% today after Rothschild & Co Redburn cut it to Neutral and lowered its target to $398 from $595.
- Redburn says Broadcom’s AI growth depends on Anthropic and OpenAI paying their own way, and doesn’t expect that quickly.
- Cerebras also depends on OpenAI, and Broadcom is helping finance Anthropic.
- The risk is real, but Broadcom’s forward P/E is already below its five-year average.
Broadcom (AVGO) sank 7% today after Rothschild & Co Redburn downgraded the stock to Neutral from Buy and cut its price target by a third, to $398 from $595.
Cerebras Systems (CBRS) rose 6% today on a quarter that beat its guidance, but it has the same problem Redburn flagged: OpenAI.
It all comes down to two labs
Redburn said Broadcom’s alignment with Anthropic and OpenAI means the frontier labs “need to establish sustained primacy over open models and become self-financing in short order.” It added that the upside from “clearing these hurdles is appreciable but is unlikely to occur quickly.”
Management expects AI chip revenue of about $115 billion in fiscal 2027 and $230 billion in fiscal 2028. Analysts have followed management up, putting total revenue at $275 billion in fiscal 2028:
I wouldn’t expect Redburn’s call alone to move these estimates. Fiscal 2028 is the bigger bet, though: management expects Anthropic to add 10 gigawatts that year, and OpenAI more than 5.
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Broadcom is backing the bill
Broadcom also carries some of Anthropic’s credit risk. It backstops up to about $29 billion of leases and may lend Anthropic up to $42 billion. Broadcom is also the largest compute counterparty in Anthropic’s amended S-1, at $161 billion, and that filing shows Anthropic’s third-quarter compute costs grew faster than its revenue.
Cerebras depends on OpenAI the same way. The Information reported in April that OpenAI agreed to pay Cerebras more than $20 billion over three years. Cerebras had $26.1 billion of remaining performance obligations at Sept. 30. Its quarter was strong, but much of that backlog relies on the same customer as Broadcom’s 2028 growth.
Priced for doubt already
Broadcom ended yesterday at 21x forward earnings, below its five-year average of 24x:
At today’s price, it’s even lower.
Redburn has the risk right. But management says 2027 demand already exceeds its outlook, and at this multiple, investors are already pricing in plenty of doubt. I’d hold through today’s drop. Broadcom reports on Dec. 9, and I’ll be watching whether management repeats its fiscal 2027 AI outlook.
So what is Broadcom stock actually worth?
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