Oguz Erkan
Investor, Founder of Capitalist Letters
Broadcom has no material upside left even if it hits its 2029 targets, because the AI capex boom is nearing its peak and its 25x sales multiple, up from 5x before 2023, would reset to about 10x. Hyperscalers are at their limits: Alphabet sold shares to raise funds, Meta is considering it and Amazon issued bonds, so frequent upward capex revisions are unlikely and a re-rating is inevitable. Nvidia, at about 20x forward earnings and 9x sales, is the better semiconductor bet. x.comÂ
Broadcom's valuation leaves big downside even if AI spending holds up. It traded at a median 5 times sales before 2023 versus about 25 times now, so even if sales reach Wall Street's $250 billion by 2029, a return to 5x would imply about 30% downside. AI capex doesn't need to collapse, only stop accelerating, for the market to stop paying peak-cycle multiples; it is a matter of when. @ThierryBorgeat notes 51% of the S&P 500's market value trades above 10 times sales. x.comÂ
Broadcom borrowing again signals a $1.8 trillion company running low on cash. Per @KobeissiLetter, citing the WSJ, Broadcom is seeking more than $50 billion of financing for OpenAI's custom AI chip, with Apollo and Blackstone among the lenders it has approached. x.comÂ
Deployment limits will slow AI hardware spending and expose cyclical suppliers such as SK hynix. Amazon has hardware waiting for power, and Broadcom's CEO said some clients delayed shipments because they could not deploy. Cheap forward multiples can mark a cyclical peak as analysts extrapolate growth. The slowdown could have begun or be a year away; timing is uncertain, so reducing cyclical risk in favor of healthier, genuinely cheap names looks better. x.com x.com x.comÂ
Broadcom's significant exposure to Anthropic's AI infrastructure spending and custom AI chips adds to its growth case. Annual EPS is projected to rise nearly fourfold from $8.06 LTM to $30.38 by FY2028, while the stock trades roughly 30% below its all-time high. x.comÂ
Google Cloud's accelerating growth positions it to lead the AI cloud market, strengthening Alphabet beyond Search. It may pass Azure next quarter, then AWS, rising from #3 to #1 in 18-24 months. Selling its Anthropic stake could fund 12-18 months of capex and buybacks, but moving roughly $300B at market price without harming their TPU and Cloud partnership is unlikely. Alphabet is cheaper than Anthropic on sales or earnings multiples; the market likely expects a 2027 capital raise. x.com x.com … Show more
Rapid revenue growth makes the capex bear case harder to justify for Microsoft, Alphabet, Meta and Amazon. Their latest cited growth rates are 18%, 23%, 28% and 16% in Q2, respectively; their scale does not seem to be slowing them as expected. x.comÂ
Broadcom's stronger AI business looks cheap for its growth, making it one of the best buys in the market right now. AI chip revenue rose 221% to $16.7B last quarter, yet the stock trades at 19x forward earnings and a 0.35 PEG. Management sees AI revenue near $115B in fiscal 2027 and would raise that outlook if customers secure more land and power. Anthropic is on track to be its largest custom chip customer next year. Wall Street's $529 average target implies about 60% upside. x.comÂ
Alphabet's higher capex guidance compounds the risk that already demanding revenue estimates must fall. The Street expected 25% revenue growth in 2027 and 21% in 2028; as 2028 earnings consensus resets, a 10% stock decline could be justified. x.comÂ
Broadcom is more overvalued than people realize. Its forecast of $230B in revenue by 2028 has the market valuing it at roughly $2T, yet Meta already generates that much revenue and is far less cyclical. x.com x.com x.comÂ
Broadcom's forward guidance is far above Street estimates, so the after-hours selloff on a soft next quarter looks like an overreaction. It expects about $115 billion in FY27 and about $230 billion in FY28, roughly doubling each year, versus analyst models near $180 billion for FY28, and demand exceeds this outlook. It is on target to exceed $30 of EPS in FY28, about 12.2x forward earnings, and expects AI networking to grow as fast as XPUs. x.comÂ
Meta looks unattractive because its fines, capital raises and AI capex make the math ugly. The stock could trade back to the $500s, while hyperscalers probably have to make those raises with equity down 15-25%. Muse looks like a fad and average users may not need AI agents, matching LogicalThesis's view. x.com x.com x.comÂ
