Macquarie adjusts stance on Broadcom amid shifts in a key customer relationship
Macquarie has moved Broadcom from an Outperform rating to Neutral and reduced its 12-month price target by 15%, taking it from $513 to $437 per share. The change stems from growing concern that Google is both broadening its supplier base and advancing its own artificial intelligence (AI) chip development, a dynamic the firm says will exert pressure on Broadcom's position in the AI application-specific integrated circuit (ASIC) market.
Analysts at Macquarie point to two related trends that underlie the downgrade. First, Google - historically a major and steady customer for Broadcom's AI ASICs - is engaging with MediaTek as an additional supplier. Second, Google is intensifying efforts to develop chips internally. Together, Macquarie sees these moves as likely to reduce Broadcom's share of the market and its role within Google's TPU-related revenue stream over the coming years.
Near-term results remain robust
Despite the change in rating, Broadcom's recent financial performance remained strong. The company reported fiscal second-quarter revenue of $22.2 billion, a 48% increase year-over-year. AI-related revenue accounted for $10.8 billion of that total. Management also guided to roughly $29.4 billion in revenue for the third fiscal quarter, citing robust AI demand and noting approximately $30 billion in new AI bookings secured during the quarter.
Reflecting the persistence of AI demand and an expected recovery in non-AI semiconductor markets, Macquarie raised its earnings forecasts for fiscal 2026 and 2027 by 12% and 14%, respectively. However, the firm trimmed its 2028 earnings estimate by 21%, warning that heightened competition in AI ASICs could weigh on revenue growth and margins beyond the near term.
Market-share trajectory and valuation context
Macquarie projects a marked decline in Broadcom's share of Google TPU-related revenue, forecasting a fall from roughly 95% in 2026 to about 80% in 2027 and 65% in 2028 as MediaTek captures a larger portion and Google furthers its in-house chip strategy. While the research house cites limited upside because of these market-share and margin concerns, it also notes that Broadcom's valuation offers some downside protection. Broadcom presently trades at around 25 times its historical average earnings multiple, a level below many of its global semiconductor peers.
The downgrade signals a notable shift in sentiment for one of the prominent beneficiaries of the AI infrastructure buildout, and underscores investor attention on how large hyperscale technology companies balance external supplier relationships with efforts to produce proprietary silicon.
Summary of the situation
- Macquarie downgraded Broadcom to Neutral and cut its 12-month price target to $437 from $513.
- The downgrade is driven by the view that Google is diversifying suppliers by working with MediaTek and growing its in-house AI chip development, pressuring Broadcom's AI ASIC market share between 2027 and 2028.
- Broadcom reported fiscal Q2 revenue of $22.2 billion, with $10.8 billion tied to AI, and management expects about $29.4 billion for fiscal Q3 backed by roughly $30 billion of new AI bookings.