Broadcom downgraded as Google moves to reduce reliance on chip supplier

Investment bank Macquarie has downgraded Broadcom from Outperform to Neutral, reflecting growing concerns over the company’s long-term relationship with a primary customer. The firm also reduced its 12-month price target for the semiconductor giant by 15%, lowering it from $513 to $437 per share.

Shift in AI Chip Strategy

The downgrade stems from a shift in how Google manages its artificial intelligence (AI) chip supply chain. While Google has historically relied on Broadcom, it is now expanding internal chip-development efforts and collaborating with MediaTek.

Analysts suggest that Broadcom’s dominant position in the AI application-specific integrated circuit (ASIC) market is facing new competitive pressure. This diversification by Google could lead to a significant decline in Broadcom’s market share between 2027 and 2028.

Did You Know? Broadcom’s share of Google’s TPU-related revenue is forecasted to drop from roughly 95% in 2026 to 80% in 2027, and further to 65% by 2028.

Strong Near-Term Financials

Despite the long-term outlook, Broadcom continues to report robust immediate financial performance. The company’s fiscal second-quarter revenue reached $22.2 billion, marking a 48% increase year-over-year.

AI-related revenue specifically accounted for $10.8 billion of that total. Management has forecasted third-quarter revenue of approximately $29.4 billion, supported by roughly $30 billion in new AI bookings secured during the quarter.

Expert Insight: Samantha Carter notes that this situation highlights a critical tension for hyperscale technology companies. They must carefully balance the efficiency of external partnerships with the strategic desire to develop proprietary silicon to reduce dependency.

Future Projections and Valuation

Macquarie has adjusted its earnings forecasts to reflect a bifurcated outlook. While forecasts for fiscal 2026 and 2027 were raised by 12% and 14% respectively, the 2028 estimate was cut by 21%.

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This reduction reflects the possibility that increased competition in AI ASICs could weigh on future growth and profitability. However, Macquarie believes downside risk may be constrained because Broadcom trades at around 25 times its historical average earnings multiple.

This valuation remains below many of its global semiconductor peers, which could limit further declines even as market sentiment shifts regarding the AI infrastructure boom.

Frequently Asked Questions

Why did Macquarie downgrade Broadcom?
The downgrade to Neutral was driven by concerns that Google is diversifying its suppliers by working with MediaTek and increasing its own internal AI chip-development capabilities.

What were Broadcom’s recent financial results?
Broadcom reported fiscal second-quarter revenue of $22.2 billion, with $10.8 billion coming from AI-related revenue.

How has the price target changed?
Macquarie cut the 12-month price target by 15%, moving it from $513 down to $437 per share.

How should semiconductor companies adapt when their largest customers begin developing in-house technology?