Broadcom (AVGO) shares came under pressure on Thursday as investors digested reports that the chipmaker is pursuing a huge financing package tied to its collaboration with OpenAI. According to the Wall Street Journal, AVGO is attempting to arrange more than $50 billion in financing to design and develop custom artificial intelligence (AI) chips for the ChatGPT company.
Following today’s decline, Broadcom stock is hovering around the same price at which it started the year.
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www.barchart.comWhat the Financing Package Really Means for AVGO Stock
Broadcom has reportedly discussed financing with potential lenders, including Apollo Global and Blackstone, but a formal process hasn’t yet started. Still, the company’s plans raise concerns for investors.
Broadcom has already been involved in a major financing arrangement for Anthropic, and another multi-billion-dollar package tied to OpenAI would significantly increase the scale of capital being deployed around its artificial intelligence customers. AVGO shares cratered because the timing is particularly unfavorable.
Treasury yields are hovering near multi-year highs, making debt more expensive, while the WSJ report suggests the AI boom is becoming “increasingly dependent” on large amounts of borrowed capital.
Should You Buy the Dip in Broadcom Shares Today?
The selloff may still appeal to long-term investors who remain bullish on AVGO’s position in the AI infrastructure market.
Its deal with OpenAI calls for 10 gigawatts of custom AI accelerators and networking systems, with deployments scheduled to begin this year and continue through 2029.
That gives Broadcom shares substantial exposure to one of the largest AI infrastructure build-outs in the industry.
That said, AVGO is currently trading at a forward price-to-earnings (P/E) multiple of about 36x, which makes it significantly more expensive to own than Nvidia (NVDA), which trades at roughly 26x.
And a small 0.73% dividend yield on Broadcom is hardly enough to offset the valuation concerns.
Broadcom Remains Buy-Rated Among Wall Street Firms
Wall Street analysts, nonetheless, remain bullish as ever on AVGO stock for the next 12 months.
According to Barchart, the consensus rating on Broadcom sits at “Strong Buy,” with the mean price target of about $523 indicating potential upside of more than 40% from here.
www.barchart.com On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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