Broadcom NASDAQ:AVGO, the Hock Tan-led chip company, saw its shares slip 3% in premarket trading on Tuesday after Erste Group downgraded the stock to Hold from Buy, pointing to valuation concerns. Analyst Hans Engel suggested the company's gross margin and operating margin are expected to remain stable at high levels, but investors may already be pricing in much of that favorable outlook.
Engel noted that Broadcom's elevated valuation appears to limit the potential for further price appreciation at current levels. That downgrade may matter for investors because it suggests the stock's recent strength could be running ahead of what Erste Group sees as near-term upside, even as the company's business outlook remains supported by strong momentum.
Still, Broadcom expects very positive momentum to continue into the third quarter of the new fiscal year, with revenue expected to rise 89% year-over-year to $29.4 billion. Engel said that figure includes roughly $16 billion from AI semiconductors, a segment investors may view as central to Broadcom's growth story as AI chip demand continues to shape market sentiment.