Macquarie analysts have downgraded Broadcom Inc (AVGO) from 'outperform' to 'neutral', warning that Google's increasing shift towards in-house chip development could dent the semiconductor giant's revenue growth. The downgrade sent Broadcom shares down 4.3% in late trading, dragging on the Nasdaq Composite, which closed 1.1% lower at 16,742. The Philadelphia Semiconductor Index also shed 1.8%.
Google, a key customer for Broadcom's custom AI and networking chips, has been ramping up its own Tensor processing units and server-on-a-chip designs. Macquarie estimates that insourcing could reduce Broadcom's revenue from Google by up to $1.5bn annually by 2026. 'The risk of vertical integration by hyperscalers is a structural headwind for Broadcom's custom silicon business,' the note stated.
For UK investors, the development underscores a broader theme: the growing dominance of Big Tech's own chip efforts, which may reshape supply chains and profit pools. Many UK pension funds and ISA portfolios hold US tech stocks via passive trackers or active funds. A sustained downturn in semiconductor names could weigh on returns, particularly for those overweight in the 'Magnificent Seven' cohort.
Analysts at Citi echoed caution, noting that Broadcom's diversification into software may cushion the blow but cannot fully offset hardware losses. 'The market is now pricing in a lower growth trajectory for Broadcom's semi segment,' they commented. Still, some fund managers argue that the sell-off is overdone, given Broadcom's strong position in networking gear for data centres.
The FTSE 100 was largely unaffected, as UK-listed chip firms are few. However, the broader tech sell-off in New York often spills into London-listed growth stocks and the FTSE 250. Investors are advised to review their portfolio concentration in US tech, particularly single-stock positions in Broadcom or related ETFs.
Source: Macquarie Research, Citi Research