Broadcom shares AVGO rose over 4% on Tuesday after investment firm DA Davidson upgraded the chipmaker to Buy from Neutral and raised its price target, citing the potential for continued artificial intelligence spending and upcoming public offerings by major AI developers.
The stock also gained support from news of a $63 billion financing arrangement involving Bank of America, Blackstone, Citigroup and Morgan Stanley to fund purchases of Broadcom’s AI chips and networking equipment for Anthropic.
DA Davidson analyst Gil Luria raised his price target to $400 from $350, implying an upside of about 22% from Monday’s closing price.
“Our reading of the Anthropic S1 leads us to believe the IPO will proceed, Anthropic will raise its capital, and next year OpenAI will raise more capital in its own IPO, allowing Broadcom to meet its expectations for the next couple of years,” Luria wrote in a note to clients.
“At the current 16x multiple on 2027 EPS, AVGO is trading as if the chances of that happening are near zero, which creates significant upside if those deals both materialize.”
Analyst sees disconnect in AI stock valuations
Luria argued that semiconductor stocks including Broadcom, Micron and Nvidia were trading as if the AI spending boom was nearing its end, with valuations ranging from five to 16 times estimated 2027 earnings.
Meanwhile, other stocks linked to the AI trade appeared to reflect expectations that the investment cycle would continue.
“We understand the trading dynamics that have led to this anomaly, but believe the underlying fundamentals will lead to mean reversion,” Luria added.
“Said otherwise, there is unlikely to be a world in which several semis companies do well while NVDA, MU and AVGO struggle.”
The upgrade comes as investors weigh the sustainability of AI infrastructure spending against the financing required to support it.
Broadcom supplies specialised AI accelerators and networking equipment used in large-scale data centres, making its outlook closely tied to spending by major AI developers.
Anthropic filing reveals scale of Broadcom leases
Anthropic filed its Form S-1 registration statement with the US Securities and Exchange Commission on Monday as it prepares to list shares on Nasdaq under the ticker ANT.
The filing disclosed five-year master equipment leases with Broadcom, under which Anthropic will receive hardware for deployment in dedicated data centre facilities operated by third parties on its behalf.
Anthropic said rent payments over the life of the leases total approximately $161.2 billion, excluding interest.
Payments are due quarterly, with obligations typically beginning when AI infrastructure equipment becomes “ready for service” at the relevant data centre.
The disclosures highlight the scale of the financial commitments required to expand AI computing capacity and the importance of financing arrangements to the sector’s growth.
$63 billion financing supports AI infrastructure expansion
Bank of America, Blackstone, Citigroup and Morgan Stanley will provide $63 billion in financing to support purchases of Broadcom’s AI chips and networking equipment for Anthropic, in one of the largest debt deals associated with the AI infrastructure buildout.
First-lien loans or senior debt account for approximately $43.5 billion, or 69% of the total financing, according to two sources familiar with the matter cited by Reuters.
Blackstone will provide the committed portion of the second-lien financing, which ranks below senior debt.
Bank of America, Citigroup and Morgan Stanley are arranging the first-lien financing.
Broadcom is providing “residual value support” to lenders, effectively offering significant protection within the financing structure.
“Today’s transaction underscores the power of our advanced technology and our strong conviction in the AI ecosystem. Fundamentally, the need for AI compute continues to grow at an extraordinary pace. This validates that there is capital available to finance such growth and that Broadcom is uniquely positioned to enable it,” Hock Tan, Broadcom’s president and CEO, said.
The analyst upgrade and financing announcement reinforce the close links between AI infrastructure suppliers, model developers and lenders.
For Broadcom, the key question is whether continued investment by companies such as Anthropic and OpenAI will translate into sustained demand for its chips and networking equipment.
With DA Davidson seeing upside in Broadcom’s valuation after the upgrade, investors weighing the stock can follow analyst rating changes and AI-sector updates through top apps for investing.
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