Why Broadcom Stock May Drop Soon

Broadcom (AVGO) has stumbled before. Its stock has plunged more than 30% within a span of less than 2 months on 2 occasions in recent years, wiping out billions in market value, and erasing massive gains in a single correction. If history is any guide, AVGO stock isn’t immune to sudden, sharp declines.

Broadcom’s impressive climb, largely driven by surging AI demand and its strategic integration of software solutions, has propelled the stock to remarkable new highs over the past year. However, this robust momentum now faces a delicate balancing act, as its elevated valuation and the reliance on sustained, massive hyperscaler investments in AI infrastructure create a subtle vulnerability should growth forecasts falter or nuanced accounting practices draw deeper investor scrutiny.

What Could Send The Stock Crashing?

• Customer Concentration: Broadcom’s AI revenue heavily depends on a few hyperscalers, with one semiconductor customer accounting for 32% of Q3 2025 net revenue. A spending slowdown or shift to in-house chip design by these key clients, despite multi-year partnerships and new deals, could significantly impact growth.
• VMware Customer Churn: While 90%+ of large VMware customers transitioned to subscriptions by Q3 2025, aggressive pricing, like the April 2025 72-core minimum, may alienate smaller clients and partners. Elevated revenue tailwinds from conversions are expected for 12-18 months, after which retention becomes paramount amidst competition.
• AI Competition Intensifies: Broadcom faces rising competition in custom AI silicon from rivals like Marvell and NVIDIA, and from hyperscalers developing their own chips. Despite its lead in networking chips, this could lead to future market share loss or pricing pressure in its AI segment.

What’s The Worst That Could Happen?

When looking at risk, it’s useful to see how AVGO holds up during big market sell-offs. In 2018, the stock dropped about 27% from peak to trough. The Covid pandemic hit it harder, with a nearly 48% plunge. During the inflation shock, the dip was around 35%. Even with strong fundamentals, AVGO isn’t immune to sharp declines when the broader market turns south. Good quality can cushion the fall, but downturns still sting.

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read AVGO Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

Is Risk Showing Up In The Company’s Financials Yet?

Let’s take a look at fundamentals

• Revenue Growth: 28.0% LTM and 24.0% last 3-year average.
• Cash Generation: Nearly 41.6% free cash flow margin and 39.0% operating margin LTM.
• Valuation: Broadcom stock trades at a P/E multiple of 68.6

*LTM: Last Twelve Months

If you want more details, read Buy or Sell AVGO Stock.

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