Broadcom could pile up 370 billion dollars of debt through its financing vehicle

Bank of America estimates that the Broadcom financing vehicle for chips used in artificial intelligence could carry senior debt of 370 billion dollars by the middle of 2029. Analyst Tom Curcuruto put the calculation forward, as Reuters reported.

The debt would sit with the vehicle and not with Broadcom itself. The company has, however, agreed to backstop certain leasing obligations of customers. What it has disclosed is a possible exposure of up to 29 billion dollars from the first financing agreement.

The share had fallen by more than five percent on Friday. On Monday it was little changed before the open and then gained 1.2 percent in a friendly futures market.

The short version

• Bank of America estimates that the Broadcom financing vehicle could carry senior debt of 370 billion dollars by mid 2029.
• Broadcom itself discloses a possible exposure of up to 29 billion dollars from the first financing agreement.
• Revenue rose 22 percent to 16 billion dollars in the third quarter, carried by custom chips and networking components.

The same debate as at Nvidia

The worry behind the share price move is not new. It concerns the question of how the build out of data centres is financed and who carries the risk in the end.

The advantage of such structures is that they support sales to customers without loading the balance sheet with debt. The drawback is that the chipmakers still take on risk through their guarantees, and that risk only becomes visible when a customer defaults or when the financed equipment turns out to be worth less than assumed.

Meta Platforms introduced this model for data centres. Filings by that company state that payments under such residual value guarantees are not probable, which is why no liability was booked. Broadcom carried the principle straight over to chip financing and has among other things backstopped Anthropic.

A comparable discussion is running at Nvidia. That company reduced its financing guarantee for an OpenAI data centre in Ohio from around 250 billion to below 120 billion dollars after investors criticised the size of it. Nvidia chief Jensen Huang has since capped the backstop at up to 25 percent per project.

Four large customers for custom chips

Broadcom develops infrastructure software and semiconductor solutions. The company leads the market in fast Ethernet components for switching and routing, which are the networking parts needed for artificial intelligence in data centres.

On top of that comes a strong position in application specific integrated circuits. These are chips built for one particular task rather than for many. According to JPMorgan Chase, Broadcom is currently developing such accelerators for four large customers, among them Google, Meta Platforms, TikTok owner ByteDance and OpenAI.

In the third quarter revenue rose 22 percent to 16 billion dollars, carried by custom chips and networking components. The company beat estimates on both revenue and earnings.

Several analysts expect Broadcom to reach a market value of two trillion dollars. Blayne Curtis of Jefferies named a price target of 480 dollars per share.

Anthropic drives the sector

On Monday a forecast from Anthropic lifted the whole group. The company expects revenue of around 190 to 200 billion dollars for 2028.

The futures markets reacted clearly. Contracts on the Nasdaq 100 were up 0.49 percent shortly after noon central European time. Micron gained 3.5 percent before the open, and Amazon and Alphabet also rose.

For Broadcom that news matters in two ways. It supports the demand outlook and therefore the business. At the same time it sharpens the question of how much capital the build out needs and through which constructions it is raised.

Frequently asked questions

How large could the debt of the financing vehicle become

Bank of America estimates senior debt of 370 billion dollars by the middle of 2029. That debt would sit with the vehicle and not with Broadcom itself. The company has disclosed a possible exposure of up to 29 billion dollars from the first financing agreement.

What is the advantage of such financing structures

They support sales to customers without loading the balance sheet with debt. The drawback is that the chipmakers still take on risk through their guarantees, and that risk only becomes visible when a customer defaults or when the financed equipment turns out to be worth less than assumed.

For whom does Broadcom develop its custom chips

According to JPMorgan Chase the company is currently developing such accelerators for four large customers, among them Google, Meta Platforms, TikTok owner ByteDance and OpenAI. It also holds a leading position in fast Ethernet components for data centres.

This analysis is for information only and is not investment advice.