Broadcom (NASDAQ:AVGO) has told investors its AI chips will bring in $21.7 billion this quarter, up 236% from a year ago. That would speed up from the 221% growth in AI chip sales it reported for the quarter just ended.
But some of the money buying those chips is borrowed, and Broadcom is helping lend it. Reuters reported, based on Anthropic’s IPO filing, that Broadcom will lend Anthropic up to $42 billion, and Yahoo Finance estimates Anthropic will become Broadcom’s largest compute customer by 2027. If you’re interested in AI investing, check out our report on 10 Undervalued AI Stocks to Buy Now.
The company designs custom AI chips with its biggest customers, who run them in their data centers, and it sells the networking gear that links them. Its infrastructure software unit is a second, smaller business that is also growing. The business looks strong, and what the stock now depends on is whether customers that borrow to pay for chips can keep borrowing.
AI Chips Are Driving a Sharp Speed-Up
Revenue grew about 22% a year over the past five years, but it rose 86% in the latest quarter alone, with AI chips leading the way. The software unit also kept growing, which adds a second source of sales outside the chip business.
CEO Hock Tan said demand for the company’s custom AI accelerators and networking remains very strong. Broadcom’s operating margin was about 48.6% over the past 12 months. A supplier that wins orders by cutting prices rarely earns margins like that, so the sales look like real demand rather than discounted volume.
Broadcom Is Now Lending to a Customer
A loan that size changes how the sales look. Anthropic also relies on Broadcom for equipment leasing and financing, Yahoo Finance said, so the supplier and the lender are the same company. In that setup, strong orders and weak finances can exist at the same time, which makes the sales figures a less complete guide than usual. If you’re interested in chipmakers more broadly, we recently compiled a report on 12 Best Performing Semiconductor Stocks to Invest In.
The report said the deal adds to worries about circular financing, where a company funds a customer that then buys its products. If one link in that chain breaks, the damage could spread across AI stocks.
Broadcom has room to lend, since it produced $13.7 billion in free cash flow last quarter, 46% of revenue. But if a borrower struggles, Broadcom would take the loss and could also see orders slow. The report did not give the loan’s interest rate, repayment schedule or collateral, so the true exposure is hard to judge.
For now, the guidance points the other way. Broadcom still expects AI chip sales to speed up this quarter, which would be odd if customers were running short of money.
What Investors Pay for That Growth
At 28.2 times estimated fiscal 2026 earnings, based on adjusted figures, Broadcom trades at a premium to a sector median of 21.01. It is only 2.9% above its own five-year average, though, which shows what investors have usually been willing to pay for the company. Adjusted figures leave out some costs, so the same price looks higher against reported earnings. Consensus estimates call for earnings per share to grow about 71% this fiscal year.
Put together, investors pay a clear premium to similar companies and little extra over what they have paid for Broadcom before. That price assumes customer funding continues, so for a shareholder it means owning a premium-priced supplier whose fastest growth leans on loans. If you’re looking for undervalued AI stocks, check out 10 Undervalued AI Stocks to Buy Now.
Who is paying for the AI chips? Customers’ own money, borrowed money, and in at least one case Broadcom itself. The next report will show whether AI chip sales reach the $21.7 billion the company guided to, and that figure is one of the first places funding trouble would appear.
READ NEXT: Nvidia (NVDA): Can Paid Software Make Its Earnings Less Dependent on Hardware Sales? and Cisco (CSCO): Can Software Renewals Outlast the Networking Upgrade Cycle?
This article is originally published at Insider Monkey.
