Macquarie Turns Cautious on Broadcom as Google AI Shift

Key Moments

Macquarie lowered Broadcom’s rating from Outperform to Neutral and cut its 12-month price target to $437 from $513.
Google’s move to deepen in-house AI chip development and bring in MediaTek is expected to erode Broadcom’s AI ASIC market share between 2027 and 2028.
Despite the downgrade, Broadcom delivered fiscal Q2 revenue of $22.2 billion, with $10.8 billion from AI, and guided Q3 revenue to about $29.4 billion.

Macquarie Downgrade and Target Price Reduction

Investment bank Macquarie has shifted its view on Broadcom, cutting the stock’s rating from Outperform to Neutral. The firm attributed the move to rising concerns about the company’s long-term positioning with one of its most important customers, Google, which is moving to lessen its dependence on Broadcom for artificial intelligence chips.

Alongside the rating change, Macquarie trimmed its 12-month price target on Broadcom by 15% to $437 per share, down from a prior target of $513.

Competitive Pressures in AI ASICs

Macquarie’s analysts highlighted that Broadcom, which currently holds a leading role in the rapidly expanding AI application-specific integrated circuit (ASIC) segment, is beginning to encounter more intense competition. Google, which has historically relied heavily on Broadcom across its AI chip supply chain, is now collaborating with MediaTek and accelerating its own internal chip design activities.

Given these shifts, Macquarie projects that Broadcom’s market share in this area will drop significantly in the 2027-2028 period.

Financial Performance and AI Demand

Despite the more cautious outlook, Broadcom’s recent financial results remain robust. The company reported fiscal second-quarter revenue of $22.2 billion, an increase of 48% compared with the same period a year earlier. Revenue tied to AI reached $10.8 billion in the quarter.

Management guided for fiscal third-quarter revenue of approximately $29.4 billion, underpinned by strong AI demand and supported by around $30 billion in new AI bookings secured during the quarter.

Revised Earnings Outlook

Macquarie adjusted its earnings projections to reflect both sustained AI strength and a recovery in non-AI semiconductor markets over the medium term, while also factoring in rising competition further out.

Fiscal Year	Change in Macquarie Earnings Forecast	Key Driver
2026	Raised by 12%	Ongoing AI demand and improvement in non-AI semiconductors
2027	Raised by 14%	Continued AI strength and broader market recovery
2028	Cut by 21%	Anticipated AI ASIC competition impacting growth and profitability

For 2028, the firm reduced its earnings estimate by 21%, cautioning that intensifying rivalry in AI ASICs could constrain both revenue expansion and margins.

Expected Share Loss in Google’s TPU Business

A key concern for Macquarie is Broadcom’s future share of Google’s tensor processing unit (TPU)-related revenue. The firm forecasts a steady decline as other suppliers gain ground and Google advances its own chip initiatives.

Year	Forecast Broadcom Share of Google’s TPU-Related Revenue
2026	Roughly 95%
2027	80%
2028	65%

Macquarie expects MediaTek to play a more prominent role over time, while Google’s in-house chip strategy continues to evolve.

Valuation, Risks, and Investor Sentiment

Although Macquarie sees constrained upside potential given the risk of market-share erosion and pressure on profit margins, it also argues that downside appears limited by valuation. According to the firm, Broadcom currently trades at roughly 25 times its historical average earnings multiple, a level it notes is below that of many global semiconductor peers.

The downgrade represents a notable change in how the firm views one of the high-profile beneficiaries of the AI infrastructure build-out. It underscores a broader investor focus on how large-scale technology platforms navigate the trade-off between working with external chip partners and pushing ahead with proprietary silicon development.