Broadcom shares slide after bank downgrade raises questions about AI chip demand concentration

Broadcom’s stock fell after a major Wall Street bank downgraded the AI-chip leader, arguing that the valuation had become too dependent on continued strength in a specific slice of the company’s artificial intelligence (AI) business. The downgrade came as investors digested Broadcom’s latest results, which were characterized by the firm as exceptional, particularly in AI semiconductors.

In the downgrade narrative circulating after Broadcom’s report, Macquarie said the issue was less about the quarter itself and more about customer concentration risk. The bank highlighted Google as Broadcom’s largest AI buyer and raised concerns that Google is expanding its chip supply chain to include MediaTek, potentially reducing Broadcom’s share of revenue tied to Google’s custom AI chips, often described as tensor processing units.

The tensor processing unit (TPU) is the specialized chip design Google uses for AI workloads, and Broadcom supplies key components and related infrastructure as part of that ecosystem. Macquarie’s concern, as described by market commentary, was that Broadcom’s share of Google TPU-related revenue could decline from roughly 95% in 2026 to about 65% by 2028. That kind of shift, the bank implied, would pressure growth expectations and the multiple investors are willing to pay for Broadcom.

Although the downgrade was framed around longer-term demand mix and valuation, it landed quickly with the stock already under pressure. In the immediate reaction, Broadcom shares had closed at $392.13, down 4.67% on the day discussed, according to market commentary that referenced trading around the downgrade window. That same commentary also said investors had seen a substantial drawdown earlier in the year, reflecting how sensitive the stock has been to any sign that AI orders could cool.

Supporters of Broadcom argued that the operating picture remained strong. Market commentary tied to the bank’s action pointed to Broadcom delivering a record revenue quarter, including revenue of $22.19 billion up 48% year over year, and adjusted earnings per share of $2.44. It also cited AI semiconductor revenue of $10.8 billion, up 143% year over year, and said free cash flow crossed $10 billion in the quarter. The bank’s counterpoint was that even strong results may not resolve uncertainty about how customer purchasing patterns could evolve.

The downgrade also drew attention to areas beyond AI hardware. Commentary around the quarter described VMware as adding pressure, noting VMware revenue of $7.2 billion and 9% growth, while annual recurring revenue rose 17%, with the segment described as landing slightly below some expectations. That mix matters because Broadcom’s market narrative increasingly hinges on whether AI growth can keep carrying the stock’s valuation while other parts of the business stabilize.

Still, the bank did not argue that Broadcom’s guidance was broken in the near term, at least according to the interpretation described in market analysis. Commentary said Broadcom’s CEO, Hock Tan, held the full-year AI chip target at $56 billion rather than raising it. In a premium-valued stock, steady guidance can look less compelling if investors were positioned for upward revisions tied to continued order acceleration.

In the absence of additional detail in the immediate reporting, what remains unclear is how quickly any Google shift toward MediaTek would show up in Broadcom’s shipments and bookings. The central question investors appear to be debating is timing: whether any supply-chain diversification is gradual enough to be offset by broader AI spending, or whether it creates a measurable step down in TPU-related revenue share.

For investors watching Broadcom next, the key will be whether management’s subsequent commentary provides more clarity on customer commitments, delivery schedules, and how much of Broadcom’s AI revenue is locked in versus exposed to procurement changes. With banks willing to move off favorable stances based on valuation and longer-horizon assumptions, the stock is likely to remain sensitive to any evidence that major buyers are broadening their supplier base.