Broadcom's $21B AI Order Confirms Demand, Yet Valuation and Debt Risks Remain Elevated

What happened

Broadcom outperformed Nvidia in 2025, driven by surging AI demand for data center chips and networking equipment. The company secured a $21 billion order from Anthropic for custom AI accelerators, building on its AI revenue growth from $3.8 billion in FY23 to $12.2 billion in FY24. However, the DeepValue report highlights that the stock trades at ~67x P/E and ~45x EV/EBITDA, over 335% above its DCF intrinsic value, indicating severe overvaluation. Management cautions about semiconductor cyclicality and potential normalization of AI demand, while high debt of ~$66-70 billion and VMware integration risks add further downside pressure. This news, while positive, does not justify the current premium, as the market may be overly optimistic about sustained growth.

Implication

The Anthropic order confirms Broadcom's competitive edge in AI accelerators, supporting near-term revenue growth and potentially meeting Q1 FY26 guidance of $8.2 billion in AI semiconductor revenue. However, at current multiples, much of this growth is already priced in, limiting upside and increasing vulnerability to any slowdown. High debt levels and reliance on sustained AI demand amplify financial risks, especially if semiconductor cycles turn or interest rates rise. VMware's licensing changes and customer churn risks could undermine the software segment, which accounts for 42% of revenue. Therefore, while the news is encouraging, it reinforces the need for caution rather than justifying investment at these elevated levels.

Thesis delta

The Anthropic order underscores Broadcom's AI momentum but does not shift the core overvaluation thesis. The stock remains a POTENTIAL SELL due to premium pricing, high debt, and cyclical risks that outweigh near-term positives. Investors should monitor AI revenue trends and debt reduction before considering any change in stance.