Why Broadcom Stock Sank Today
Key Points
An analyst cut his price target on the AI hardware maker.
He cited concerns about one of its high-profile customers, Antrhopic.
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Broadcom (NASDAQ: AVGO) might be on the front line of the artificial intelligence (AI) revolution, but that enviable position wasn't reflected in its stock market performance on Monday. Investors traded out of the tech hardware specialist's shares following an analyst's price target cut. Although the share price decline wasn't drastic, Broadcom landed in negative territory, down 0.2%.
A $30 haircut
Before market open, RBC Capital's Srini Pajjuri reduced his fair value assessment of Broadcom stock to $340 per share. This wasn't far down from his previous level of $370. In making the change, Pajjuri maintained his sector perform (hold, in other words) recommendation on the company.
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According to reports, the analyst is bullish about certain aspects of the company and pessimistic about others. He expects it to post a "beat and raise" quarter when it unveils its first-quarter fiscal 2026 results (scheduled for after-market close on Wednesday). Demand for the tensor processing units (TPUs) it builds for Alphabet's Google will likely help power the company's growth in the period.
On the negative side, Pajjuri expressed concern about the company's relationship with high-profile AI developer Anthropic. While Broadcom's supply arrangement with Anthropic will continue to bring in revenue, he wrote that demand could fall off after the first half of 2027. Finally, the prognosticator pointed out that Broadcom currently trades at a roughly 25% premium to AI chip king Nvidia.
Unique and worth it
Broadcom's name is appropriate, since the company has built a fairly broad business over time. As such, while it benefits from the AI boom, it's not beholden to it, and its diversity relative to companies more focused on AI hardware is worth a premium. I'd agree that Broadcom stock is expensive right now, but to me, its uniqueness justifies the higher valuations.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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