The Hidden Risks In Broadcom Stock's Bull Run

Core Viewpoint - Broadcom (AVGO) has faced significant stock declines in the past, with drops exceeding 30% on multiple occasions, indicating vulnerability to abrupt market corrections [1][5]. Risk Factors - Risk 1: VMware Customer Loss and Legal Action There is a potential loss of VMware customers due to compulsory subscriptions and price increases, with evidence of price hikes ranging from 800% to 1,500% expected by May 2025. Additionally, legal actions are anticipated, such as Tesco's £100 million lawsuit regarding alleged contract violations [3][10]. - Risk 2: Geopolitical Retaliation Risks in China Broadcom may face a significant revenue exposure loss of 17% from China due to new U.S. tariffs on AI chip exports and directives to eliminate foreign software from state-owned enterprises by mid-2026. This geopolitical tension could lead to immediate margin pressures [4][10]. Financial Performance - Revenue Growth Broadcom has reported a revenue growth of 23.9% over the last twelve months and a 25.2% average growth over the last three years [11]. - Cash Generation The company has demonstrated strong cash generation capabilities, with a free cash flow margin of nearly 42.1% and an operating margin of 40.8% for the last twelve months [11]. - Valuation Broadcom's stock is currently trading at a price-to-earnings (P/E) multiple of 68.2, indicating a high valuation relative to earnings [11].