The Broadcom Stock Paradox: Why a $2 Trillion Valuation Ignores the Base Economics of Custom Chips

The market capitalization of Broadcom Inc. (AVGO) is rapidly approaching the $2 trillion mark. This fact alone places the company in the club of the largest technological giants of the planet. But in my view, the current market valuation appears overheated, and investors, pricing in perpetual growth while assuming margins remain intact, are making a mistake.

The current optimism is understandable. Broadcom positions itself in the market as the main beneficiary and leader in the segment of custom AI-chips (ASIC), forming long-term alliances with key consumers of computing capacities — Alphabet (GOOG) (GOOGL), Meta (META), and recently OpenAI and Anthropic. However, behind beautiful headlines about multi-billion contracts lies a deep contradiction between the expectations of Wall Street and the real business model by which this sector functions.