Broadcom extended its chip supply partnership with Apple through 2031 on Monday, cementing the semiconductor maker’s role as a critical supplier to the iPhone maker, even as analyst Hans Engel at Erste Group cut his rating on AVGO stock to Hold from Buy the next day, citing valuation concerns.
The extended agreement marks a major win for Broadcom, which will continue developing and supplying custom ASIC silicon products to Apple across multiple generations of devices. Apple accounts for roughly 20% of Broadcom’s annual revenue, according to analysts, making the long-term commitment a significant source of stability.
The deal eases investor concerns that Apple would replace Broadcom’s components with its own in-house designs in the near term. Despite Apple’s years-long effort to design its own modems and processors, the company still relies on Broadcom for complex custom silicon, particularly as it pushes deeper into artificial intelligence applications on its devices.
Broadcom’s shares jumped more than 3% when the deal was announced on July 6, 2026. The company has been supplying Apple with key components such as radio frequency chips for cellular connectivity, Wi-Fi and Bluetooth chips, and other networking semiconductors since 2010.
Valuation Concerns Trigger Downgrade
The momentum from the Apple deal proved short-lived. On July 7, Erste Group analyst Hans Engel downgraded Broadcom to Hold from Buy, sending shares down more than 3% in premarket trading. Engel acknowledged Broadcom’s strong fundamentals—he expects revenue to reach about $29.4 billion in the third quarter, up 89% year-over-year, with AI semiconductor revenue rising to $16 billion—but argued that much of this optimism is already reflected in the stock price.
Broadcom’s trailing price-to-earnings ratio stands at 62.23, well above the semiconductor sector average of 35.70, suggesting investors are paying a premium for the company’s strong AI growth prospects. Engel’s concern is that the elevated valuation leaves limited room for upside if the company’s future results fail to meet the market’s high expectations.
The downgrade reflects a broader tension in semiconductor stocks: while AI demand remains robust and Broadcom’s business is accelerating, the stock’s recent rally has left less margin for error. Broadcom’s shares had climbed to a record high of $495 on June 3, just ahead of the company’s fiscal Q2 2026 earnings report, before pulling back in recent weeks.
Despite Engel’s downgrade, the broader analyst community remains bullish. Broadcom holds a Strong Buy consensus rating based on 23 Buy and four Hold recommendations assigned in the last three months, with an average price target of $516.91 implying 38% upside from current levels.
Sources
- Reuters — Broadcom’s extended partnership with Apple through 2031, Apple’s 20% revenue contribution, and deal details on custom chip supply
- TipRanks — Erste Group analyst Hans Engel’s downgrade from Buy to Hold, valuation concerns, P/E ratio comparison, and Q3 revenue guidance
- Stock Analysis — Broadcom’s current P/E ratio of 62.23 and semiconductor sector average of 35.70
