What Could Go Wrong With Broadcom Stock?
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.
Specifically, we see these risks:
- VMware Customer Attrition and Litigation From Forced Subscriptions/Price Hikes
- Geopolitical Retaliation Risk in China
- Deteriorating Working Capital Health
Risk 1: VMware Customer Attrition and Litigation From Forced Subscriptions/Price Hikes
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- Details: Projected market share collapse from 70% to 40% by 2029 (Gartner), Erosion of high-margin recurring software revenue as enterprise customers migrate to alternatives
- Segment Affected: Infrastructure Software
- Potential Timeline: Next 12-24 months
- Evidence: Customers reporting price hikes between 800% and 1,500% (May 2025), Tesco filing a £100m lawsuit over alleged breach of contract and refusal to honor support agreements (Jan 2026), Competitor Nutanix added over 2,700 new customers in fiscal 2025, primarily fleeing VMware (Aug 2025)
Risk 2: Geopolitical Retaliation Risk in China
- Details: Potential loss of significant portion of 17% revenue exposure from China (FY2025), Margin compression on AI chips due to newly imposed 25% U.S. tariffs on exports to China
- Segment Affected: Infrastructure Software, Semiconductor Solutions
- Potential Timeline: Immediate to Q2 2026
- Evidence: China issues directive to phase out foreign software, including VMware, from state-owned firms by mid-2026 (Jan 2026); U.S. imposes 25% tariff on advanced AI chip exports (Jan 2026); and there is a Stock sell-off of 4.2% on news of China’s software ban (Jan 2026)
Risk 3: Deteriorating Working Capital Health
- Details: Weakening cash conversion cycle, potential for future cash flow strain, Signal of channel stuffing or difficulty collecting from customers
- Segment Affected: Corporate/Financial
- Potential Timeline: Next 2-3 Quarters
- Evidence: Days Sales Outstanding (DSO) increased 49.4% year-over-year (Nov 2025), DSO reached a 5-year peak of 53 days (Nov 2025)
What Is The Worst That Could Happen?
Looking at AVGO, it’s clear risk is real despite positives. The stock fell about 27% in 2018’s correction, nearly 48% during the Covid crash, and around 35% in the recent inflation shock. Even strong stocks like AVGO can face steep drops in tough markets.
But the 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 Financials Yet?
- Revenue Growth: 23.9% LTM and 25.2% last 3-year average.
- Cash Generation: Nearly 42.1% free cash flow margin and 40.8% operating margin LTM.
- Valuation: Broadcom stock trades at a P/E multiple of 68.2
| AVGO | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Semiconductors | – |
| PE Ratio | 68.2 | 24.1 |
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| LTM* Revenue Growth | 23.9% | 6.2% |
| 3Y Average Annual Revenue Growth | 25.2% | 5.6% |
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| LTM* Operating Margin | 40.8% | 18.8% |
| 3Y Average Operating Margin | 38.6% | 18.4% |
| LTM* Free Cash Flow Margin | 42.1% | 13.5% |
*LTM: Last Twelve Months
If you want more details, read Buy or Sell AVGO Stock.
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