Broadcom Shares Drop Following Significant Price Target Cut and Circular Financing Concerns

Broadcom shares tumbled on Friday, dropping as much as 7.3% during the session and trading down 5.1% by early afternoon. The downward momentum was triggered by a downgrade from Rothschild & Co Redburn analyst Mike Harrison, who lowered his rating on the networking and semiconductor specialist to neutral from buy while slashing his price target drastically from $595 to $398.

The downgrade stems from growing anxieties over Broadcom's customer concentration and its heavy exposure to artificial intelligence developers OpenAI and Anthropic. According to the analyst, Broadcom's future growth relies heavily on these two start-ups quickly achieving financial self-sufficiency and maintaining dominance over open-source models, a milestone that may take time to reach.

Market concerns have also centered on the financial arrangements between Broadcom and its clients. Broadcom has backed up financing deals for its custom chip buyers, providing up to $63 billion in financing guarantees for Anthropic and another $50 billion for OpenAI. While CEO Hock Tan defended the strategy as a lucrative investment strategy—highlighting that every gigawatt of compute deployed could yield substantial annual recurring revenue—critics worry about the risks of circular financing.

What to watch next: Monitor whether Anthropic and OpenAI can solidify their revenue models and how upcoming earnings reports reflect the safety of Broadcom's financial guarantees.