Broadcom shares closed Friday's session down 1.8% at $325.17 following a cautious initiation from D.A. Davidson. The firm assigned a Neutral rating with a $335 price target, expressing concerns that major cloud infrastructure providers could increasingly shift custom semiconductor development to internal teams.
Analyst Gil Luria characterized Broadcom's artificial intelligence custom chip segment as "a shrinking iceberg," highlighting margin risks if hyperscale customers reduce reliance on external suppliers. The firm noted that Broadcom's valuation for its AI-specific integrated circuits may not justify a premium compared to industry leaders like Nvidia given these competitive dynamics.
The broader chip sector experienced volatility during the trading session, with Nvidia declining 2.2% while the S&P 500 managed a modest gain. Markets will be closed Monday for the Presidents Day holiday, with trading resuming Tuesday.
Investor attention now turns to Broadcom's upcoming financial report scheduled for March 4, which will provide crucial insight into whether AI-related investments are translating into sustainable profitability. The company's earnings call is set for 5 p.m. Eastern Time that day.
Broadcom maintains a significant position in data center infrastructure through both custom silicon and networking solutions, alongside a substantial software business. This diversified exposure has made the company a key indicator for continued enterprise AI spending.
However, analysts are increasingly monitoring whether cloud giants like Amazon, Microsoft and Google will expand their in-house chip design capabilities, potentially compressing margins for external suppliers even as overall market revenues continue expanding.
