Key Takeaways
- Broadcom fell 9% today on fears that Democrats’ midterm wins will slow US data center building.
- Analysts expect Broadcom’s normalized EPS to nearly triple from fiscal 2025 to fiscal 2027.
- The selloff prices in a policy risk that hasn’t touched Broadcom’s results, and the stock went in below its usual multiple.
- The test is Broadcom’s Dec. 9 report and its fiscal 2027 AI outlook.
Broadcom (AVGO) is down 9% today with no news of its own, in a chip rout across the AI supply chain.
Democrats won both chambers of Congress in the Nov. 3 midterms, and traders fear tighter AI rules and slower data center construction. A big phone chipmaker’s guidance after Wednesday’s close added to the selling.
The rest of the AI supply chain fell harder
Suppliers deeper in the AI build-out had a worse day than Broadcom, though both had just reported strong quarters. Chip packager ASE Technology Holding Co. (ASX) is off 19%, a week after a strong report: on Oct. 29, it said third-quarter revenue rose 45% from a year earlier. Storage company Everpure (P) has lost 16% and is in the same boat: revenue grew 38% in its fiscal second quarter, which ended Aug. 2, and it raised its full-year guidance on momentum in AI and hyperscale products.
Ciena (CIEN) had no news either, but fell 15% with optical stocks on worries that hyperscalers will slow their networking orders too.
Applied Digital (APLD) dropped 17% on data center permit fears after Democratic wins in Texas. Yet Applied Digital’s leased campuses, worth about $36 billion of revenue over their base terms, are in North Dakota, Louisiana and Alabama. That looks like guilt by association.
TIKR tracks 51 analysts on Broadcom. How many say “Buy”?
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Analysts are counting on the buildout
Broadcom guided on Sept. 2 to $21.7 billion of AI chip revenue for its fiscal fourth quarter, and analysts expect normalized EPS to climb from $6.82 in fiscal 2025 to $30.37 in fiscal 2028.
None of today’s news came from Broadcom, so I don’t see those estimates moving before Dec. 9.
Washington could still matter: on Broadcom’s third-quarter call, CEO Hock Tan called land, power and the building shell “more than a big concern.”
But Broadcom had $179.2 billion of committed contract value at Aug. 2, up from $33.3 billion nine months earlier.
Cheaper than usual going in
Broadcom went into today at under 19x forward earnings, well below its five-year average of 24x.
At today’s price, it’s lower still.
The bigger risk is the financing: Broadcom backstops up to about $29 billion of leases for Anthropic’s chips, plus up to about $43 billion more on a second package.
Frankly, this looks like a policy scare priced in before any policy exists, and Broadcom is cheaper for it.
If management still sees about $115 billion of AI revenue for fiscal 2027 on Dec. 9, today’s drop will look like a gift. If not, the market had it right.
So what is Broadcom stock actually worth?
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Disclaimer:
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