When I last wrote about Broadcom (NASDAQ:AVGO), I said I’d buy the stock at its Nov. 5 closing price of $291.53. Shares have bounced quickly since. At around $329 as of this writing, they’re about 13% higher, but still about 32% under their record close on June 2.
A higher price is a good reason to look more closely at what could go wrong. And for me, one risk stands above the rest. In its last quarterly filing, Broadcom estimated that its five largest end customers accounted for about 55% of its revenue.
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But I don’t think that risk is big enough to keep me out of the stock.
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Five customers now drive most of the sales
Broadcom’s customer concentration has grown fast. The company thinks its top five end customers, across all sales channels, made up around 40% of net revenue in both fiscal 2024 and 2025.
This share rose to about 50% in the first quarter of fiscal 2026 and slipped to about 45% in the second. Then it jumped to around 55% in the fiscal third quarter (the period ended Aug. 2, 2026), against about 40% a year ago. This comes to around $16 billion of the quarter’s $29.6 billion in revenue.
The jump tracks the growth in Broadcom’s artificial intelligence (AI) business. AI semiconductor revenue was $16.7 billion in fiscal Q3, up 221% year over year, or more than half of total revenue. And Broadcom designs custom AI chips, which it calls XPUs, for just six customers.
Broadcom’s 10-Q is frank about it. Losing any top-five customer, or a significant fall in demand from one, could have a material adverse effect on the business.
Of course, the filing also says that big customers placing or delaying large orders can make quarterly revenue swing significantly, especially in AI and wireless.
Is Anthropic good for the money?
The concentration could grow next year.
“Anthropic is on track to become our largest XPU customer in 2027 and sustain that in 2028,” CEO Hock Tan told analysts during Broadcom’s Sept. 2 earnings call.
I follow this customer more closely because Broadcom helped set up the financing for its computing capacity. Management said on the call that the first $35 billion tranche of its AI XPV platform (a program where outside financial partners buy the AI hardware and lease it to the customer) covers Anthropic’s 1-gigawatt deployment.
If the customer defaults on these leases, Broadcom’s 10-Q puts its maximum potential liability under the related backstop at around $29 billion. Then on Oct. 26, Broadcom added a second backstop for more of that customer’s leases, with a maximum potential liability of around $43 billion.
Yes, that’s up to about $72 billion of exposure to one company. But Anthropic doesn’t look like a shaky customer. Its revised IPO filing on Nov. 10 lists around $96 billion in cash and $36 billion in short-term investments as of Sept. 30, before any money from the offering.
The stock still looks reasonably priced
Concentration would worry me more if Broadcom’s growth were slowing. Instead, it’s picking up. Total revenue rose 86% year over year in fiscal Q3, and for the quarter that ended Nov. 1, management guided for 93% year-over-year growth, which would put revenue at around $34.8 billion.
Tan also said on the call that Broadcom has lined up enough supply for AI revenue to double again in fiscal 2027, to around $115 billion.
Buying at about $329 rather than about $292 does cost something. The stock now costs around 17 times the consensus adjusted earnings estimate for fiscal 2027. At the Nov. 5 close, it was around 15 times earnings.
That leaves a little less room for error if one of those five customers delays an order. But I’d say 17 times earnings is a fair price for a growth stock whose sales are still speeding up.
In the end, my biggest worry hasn’t gone away. One delayed order from a big customer could hurt a quarter, and the stock could drop hard when it does. But Broadcom’s top customers are spending more, not less. And the one expected to be Broadcom’s largest custom AI chip customer next year arguably looks well equipped to pay, holding over $130 billion in cash and short-term investments.
So, I’d still buy Broadcom stock at about $329. I’d just keep the position small enough that a stumble at any one of those customers couldn’t do too much harm.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom. The Motley Fool has a disclosure policy.
Here’s My Biggest Worry About Broadcom Stock. It Isn’t Enough to Stop Me From Buying. was originally published by The Motley Fool
