Broadcom Shares Drop After Analyst Downgrade Over AI Financing
Broadcom shares fell over 7% after Rothschild & Co Redburn downgraded the stock due to heavy financing guarantees provided to AI startups OpenAI and Anthropic.
Shares of Broadcom Inc fell as much as 7.3% on Friday following a downgrade by Mike Harrison of Rothschild & Co Redburn. Harrison moved the stock to neutral and lowered the price target from $595 to $398, citing risks associated with customer concentration.
The downgrade centers on Broadcom's reliance on AI startups OpenAI and Anthropic. To facilitate the purchase of its application-specific integrated circuits (ASICs), Broadcom provided massive financing guarantees to these firms, including up to $63 billion for Anthropic and $50 billion for OpenAI. Harrison argued that these startups must establish primacy over open models and become self-financing to sustain Broadcom's growth, noting that clearing these hurdles is unlikely to occur quickly.
CEO Hock Tan defended the strategy, describing the financing as a strong investment. Tan pointed to the potential for these AI firms to generate $30 billion in annual recurring revenue per gigawatt of compute deployed, calling the arrangement a great business model.
