Broadcom Faces Twin Headwinds: Analyst Downgrades on Rich Valuations as DeepSeek Eyes In-House Chip Development

Broadcom’s AI-fueled rally is running into a pair of obstacles that are giving investors pause. The chipmaker’s stock slipped nearly 1% over the week as an analyst from Erste Group downgraded the shares on valuation grounds, while a Reuters report revealed that Chinese AI developer DeepSeek is building its own chip – a move that could sideline Broadcom from a key customer in the future.

Hans Engel of Erste Group cut his recommendation on Broadcom from “Buy” to “Hold,” arguing that the stock’s current price leaves little room for further upside. The expected price-to-earnings multiple stands at roughly 35, making Broadcom notably more expensive than AI darling Nvidia, which trades at a P/E of around 22. Engel also pointed to a price-to-sales ratio above 23, a level that historically signals limited appreciation potential even when earnings growth remains robust. The downgrade came just one day after Broadcom announced a renewed supply agreement with Apple that runs through 2031, a deal that sent the shares briefly higher. Engel, however, believes the market has already fully priced in that positive news.

Operationally, Broadcom appears in solid shape. Revenue for the current quarter is expected to surge 89% year over year to roughly $29.4 billion, with AI chips alone contributing about $16 billion. Margins remain strong, and the Apple contract extension provides long-term visibility. Yet the stock has struggled to hold its recent gains. As of Tuesday, Broadcom traded at around $374, more than 22% below the high it touched in June 2026. Technical indicators show the shares slipping below their 50-day moving average, with the 100-day line at €322.72 acting as a near-term hurdle. Longer term, the 200-day moving average of €311.89 offers underlying support.

Should investors sell immediately? Or is it worth buying Broadcom?

The DeepSeek report adds a fresh layer of uncertainty. According to Reuters, the Chinese AI startup is developing its own custom chip, following a trend among large cloud and AI companies to reduce reliance on external suppliers. While Broadcom has long positioned itself as a leader in tailor-made AI accelerators, the prospect of key customers bringing chip design in-house could pressure margins over time. DeepSeek’s move is the latest example of an industry-wide push toward vertical integration that has already seen hyperscalers develop their own silicon.

Despite the headwinds, Wall Street remains broadly bullish. Over the past three months, 23 analysts have issued Buy recommendations on Broadcom, against just four Hold ratings. Index funds dominate the shareholder register: the Vanguard Total Stock Market ETF holds 3.17% of shares, the Vanguard S&P 500 ETF owns 2.61%, Vanguard Index Funds collectively control nearly 6.76%, and Fidelity Concord Street Trust has a 1.76% stake. The stock has also been notably volatile, logging 16 single-day moves of more than 5% over the past year.

The company’s next quarterly results will be the crucial test. Broadcom’s revenue growth continues to impress thanks to insatiable demand for AI infrastructure, but the valuation debate is heating up. With the stock already reflecting much of the good news and new risks emerging from customer-led chip development, investors are asking whether the current price can be justified by the pace of earnings expansion.