What Are The Risks Threatening AVGO Stock's Run?

Core Viewpoint - Broadcom's stock has faced a challenging start to the year, currently down 4%, despite record demand for AI-related hardware, primarily due to cooling investor sentiment and skepticism about long-term profitability [2] Historical Performance - Broadcom has experienced significant stock volatility, with notable declines of over 30% occurring on two occasions in recent years [3] - These rapid corrections have resulted in billions lost in market capitalization, erasing substantial gains in a short period [4] Risks Identified - Risk 1: VMware Post-Acquisition Customer Revolt Projected decline in market share from 70% to 40% by 2029, with evidence of customer dissatisfaction leading to lawsuits and potential annulment of merger approvals [5][11] - Risk 2: AI-Driven Margin Compression Management has indicated a sequential decline in gross margins, with adjusted EBITDA margin guidance suggesting a drop to 67% due to the increasing mix of lower-margin custom AI chips [6][11] - Risk 3: Geopolitical Retaliation and Tariff Challenges Potential loss of 17% revenue dependency from China and margin pressure from new U.S. tariffs on AI chip exports, with immediate impacts expected [7][11] Financial Overview - Broadcom's revenue growth stands at 23.9% for the last twelve months and 25.2% for the last three-year average [15] - The company has a free cash flow margin of nearly 42.1% and an operating margin of 40.8% for the last twelve months [15] - The stock is currently trading at a P/E multiple of 68.0, indicating a high valuation relative to earnings [15]