This Analyst Just Downgraded Broadcom Stock. Here's Why

Broadcom (AVGO) shares are inching down on July 7 after Erste Group downgraded the Palo Alto-headquartered semiconductor behemoth to “Hold.” 

The firm’s senior analyst Hans Engel did not issue a formal price objective for AVGO but said the current premium already reflects its substantial growth.

Versus its recent high, Broadcom stock is down about 23% at the time of writing. 

Broadcom Stock Is Trading at a Significant Premium

Erste Group downgraded AVGO shares this morning primarily because of valuation concerns. 

The chipmaker is currently trading at a forward price-to-earnings (P/E) ratio of about 35x, which makes it even more expensive to own than the artificial intelligence (AI) darling, Nvidia (NVDA), at about 22x only. 

From current levels, “the potential for further price appreciation appears rather limited,” the firm’s analyst Hans Engel told clients in a research report today. 

Note that Broadcom has recently slipped below its 20-day moving average (MA), indicating the bearish momentum could sustain in the near term. 

What Else Could Hurt AVGO Shares in 2026?

Beyond valuation, caution is recommended in playing Broadcom shares also because of underlying concerns about the company’s shifting revenue mix.

While artificial intelligence bookings have been booming, reaching a staggering $30 billion in the latest reported quarter, AVGO’s custom chips could actually weigh on its overall profitability. 

In fact, management itself guided for gross margins to come in at 74% in the third quarter — down 310 basis points sequentially — due to increased contribution from the lower-margin hardware. 

Any sudden moderation in capital expenditures, power availability, or hardware deployment from giants like Alphabet (GOOG) (GOOGL) and Meta Platforms (META) could, therefore, deflate expectations and impact the bottom line.

That said, AVGO currently pays a dividend yield of 0.7%, which makes it somewhat more attractive to own for income-focused investors. 

What’s the Consensus View on Broadcom?

Investors can also take heart in the fact that other Wall Street firms disagree with Erste Group’s cautious view on Broadcom for the next 12 months. 

According to Barchart, the consensus rating on AVGO stock remains at “Strong Buy,” with the mean price target of nearly $517 signaling potential upside of roughly 40% from here.