Benjamin Graham on Broadcom

Broadcom rose 4%, from the prior $329.17 close to $342.33 on October 27, per the supplied market data. Graham’s Mr. Market treats that quote as an offer, not an appraisal. Graham’s investment test requires thorough analysis, safety of principal and an adequate return. Graham also requires a margin of safety between the price and a defensible estimate of business value.

Broadcom’s fiscal third-quarter report put revenue at $29.59 billion for the quarter reported September 2, against $19.31 billion for the fiscal first quarter reported March 4. Broadcom reported AI chip revenue of $16.7 billion against $8.4 billion in those respective quarters. Those sales establish growth across the two reported quarters; they do not measure the risk Broadcom has taken to finance customers.

Per Bloomberg’s October report, Broadcom arranged a $63 billion package to finance Anthropic chip purchases through a special-purpose vehicle. The WSJ’s sources said CEO Hock Tan agreed to higher rates and loan guarantees to secure bank participation. Broadcom’s 10-Q for the quarter ended August 2 describes an initial $35 billion tranche agreed in June. Broadcom backstops five years of customer lease payments and, after a default, owes the gap between 85% of the amount due and the racks’ resale proceeds. Broadcom estimates maximum undiscounted exposure on that tranche at about $29 billion once all racks deploy; the filing calls payment unlikely. Anthropic’s S-1 identifies Broadcom as supplier and lessor, while Broadcom’s 10-Q leaves its customer unnamed. The supplied record does not reconcile the October financing package with the June tranche.

Per the TEXXR coverage record, 16 of 53 coded Broadcom relationship links logged from May 7 through October 26 concern customer financing, versus none of 270 logged from 2006 through May 6. TEXXR counts coverage links, not financing deals.

Graham’s defensive price tests set ceilings of 20 times the latest year’s earnings and 25 times average earnings over the preceding seven years. The supplied record lacks the per-share earnings and asset-and-claim figures needed to apply those tests or Graham’s net-current-asset test. Broadcom’s sales and disclosed guarantees therefore do not, by themselves, establish an intrinsic value or a measurable margin of safety against its October 27 quote.

Where this lens comes from

Benjamin Graham's framework is set out at the lens page, drawn from The Intelligent Investor, Security Analysis. This page applies it to Broadcom and nothing else — the company's full record is in the dossier.