Broadcom Inc. (NASDAQ: AVGO) saw its shares climb 7.1% to $420.12 in afternoon trading on Tuesday, adding roughly $132.7 billion to its market value based on the share count from May. That figure, an early estimate, surpassed the company's total $128.1 billion in purchase commitments and stood at 8.3 times its projected $16 billion AI revenue for the fiscal third quarter.
The comparison highlights the scale of investor enthusiasm versus near-term financial obligations. While the rally reflects optimism about AI demand, it also underscores the company's substantial commitments to inventory and customer financing. Broadcom has pledged $128 billion for hardware purchases through 2028, with a significant portion due in fiscal 2027 and 2028.
Semiconductor Sector Rallies
The broader semiconductor complex also advanced, with the Philadelphia Semiconductor Index gaining roughly 5.8%. Marvell Technology (MRVL) jumped 13.7%, Advanced Micro Devices (AMD) rose 8.9%, and NVIDIA (NVDA) added 3.0%. Eric Parnell, chief market strategist at Great Valley Advisor Group, noted that AI earnings performance has been exceptional but questioned whether the momentum can persist.
Financing Concerns Resurface
The financing debate returned to the forefront after the Financial Times reported on a $200 billion Google-backed network supporting Anthropic, with about $150 billion allocated for chip acquisitions. The structure uses private credit to buy hardware and lease it back to Anthropic. Google, a key Broadcom partner, relies on TPUs co-developed with Broadcom. Broadcom has committed $128 billion for 3.5 gigawatts of hardware through 2028, according to the report.
In a June filing, Broadcom disclosed $128.11 billion in legally binding, unconditional purchase commitments, mostly related to inventory. The bulk of these commitments are due in fiscal 2027 ($55.2 billion, 43.1%) and fiscal 2028 ($72.9 billion, 56.9%), with minimal amounts in 2026 and 2029.
Revenue Growth Trajectory
Broadcom's AI revenue is growing at a pace far outpacing its other businesses. In Q2 FY2026, total revenue was $22.187 billion, with AI semiconductor revenue at $10.8 billion (48.7% of total). For Q3, management guides to roughly $29.4 billion in total revenue and $16 billion in AI semiconductor revenue, implying sequential growth of 32.5% and 48.1%, respectively. AI's share of total revenue is expected to rise to 54.4%.
CEO Hock Tan said in June that momentum continues, predicting AI semiconductor revenue would grow more than 200% year-over-year. The company's backlog stands at $164.6 billion, with custom-AI contracts spanning multiple years, and about 30% expected to be recognized in the next 12 months.
Lease Backstop and Cash Flow
Broadcom also revealed a five-year lease backstop in June, with maximum exposure of $29 billion as AI racks are installed. This amount decreases as clients pay, and Broadcom has the option to take over leases or resell racks in the event of default. The exposure is equivalent to 1.5 times cash and 2.8 times Q2 free cash flow, but it does not represent an immediate loss.
Investors are now focusing on cash conversion as Broadcom prepares to report fiscal third-quarter results after market close on September 2. The company's reliance on deferred financing puts pressure on cash flow and increases default risk, especially given that its five largest clients accounted for roughly 45% of revenue in the first half.
Legal and Regulatory Overhang
Separately, Broadcom failed on August 3 to halt an EU request for documents related to the VMware antitrust investigation. The case centers on U.S. legal documents, adding to regulatory uncertainty.
The market rally has raised expectations, but the true test will be whether Broadcom can convert its AI orders into cash. As one strategist put it, the focus on September's cash conversion is now equally important as top-line AI sales.
