Key Points
Broadcom has agreed to loan Anthropic up to $42 billion, according to reports on the AI lab's IPO filing.
Broadcom's AI semiconductor revenue climbed 221% year over year last quarter.
Broadcom expects Anthropic to become its biggest custom-chip customer in 2027.
Anthropic, the company behind the Claude chatbot, confidentially filed for an initial public offering (IPO) in June. Now the artificial intelligence (AI) lab's reportedly aiming to raise up to $100 billion when it lists. This would beat the $86 billion SpaceX raised in June in the biggest IPO ever.
Most investors can't buy Anthropic stock yet. But one public company's closely linked to the AI lab's spending. On Oct. 1, Reuters reported that Anthropic's IPO filing says Broadcom (NASDAQ:AVGO) has agreed to loan Anthropic up to $42 billion using convertible notes. This could cover about a third of a $125.2 billion, five-year commitment Anthropic has made to lease computing capacity on tensor processing units (TPUs), custom AI chips Broadcom helps design.
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Broadcom stock trades around $355 as of this writing, off about 28% from its 52-week high. At that price, I think the chipmaker is worth a close look before Anthropic lists.
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How much of Anthropic's spending goes to Broadcom?
The $125.2 billion isn't Broadcom revenue, though. It's a lease commitment paid over five years. Broadcom's own quarterly filing describes a financial partner buying the AI racks built around its chips and leasing them to the customer.
What Broadcom has said about Anthropic is arguably more helpful. On the company's earnings call on Sept. 2, CEO Hock Tan said Anthropic is deploying 1 gigawatt of TPU capacity this year. He expects another 5 gigawatts in 2027 and sees a path to an extra 10 gigawatts in 2028.
"Anthropic is on track to become our largest XPU customer in 2027 and sustain that in 2028," Tan said on the call.
XPU is Broadcom's name for the custom AI chips it makes, and Tan said it has just six XPU customers.
Accelerating AI sales
Showing how fast this business is moving, Broadcom's AI semiconductor revenue climbed 221% year over year to $16.7 billion in the fiscal third quarter of 2026, which ended Aug. 2. That growth rate is also accelerating. It beat the 143% pace Broadcom posted in fiscal Q2, which itself topped fiscal Q1's 106%. Management sees fiscal fourth-quarter AI revenue of $21.7 billion, up 236%.
Profits are keeping pace. Broadcom's fiscal third-quarter earnings per share under generally accepted accounting principles (GAAP) grew 215% year over year, and free cash flow climbed 95% to a record $13.7 billion.
Anthropic shows up most in the longer-term forecast. Broadcom sees around $58 billion of AI revenue in fiscal 2026 and about $115 billion for fiscal 2027 -- the year Tan expects Anthropic to become Broadcom's largest custom-chip customer.
Anthropic's spending, in other words, already shows up in Broadcom's numbers.
Broadcom is financing its own customer
Of course, Broadcom is taking real risk to land that business. The $42 billion is more than the $24 billion of cash it had at the end of fiscal Q3. It's also around three quarters' worth of free cash flow at that record rate.
Broadcom might not carry all that alone, though. Bloomberg said on Oct. 2 that banks working for Broadcom have started raising around $60 billion in outside debt to fund AI chips for Anthropic and others.
The notes appear in Broadcom's quarterly filing without naming the customer, and none had been issued as of Aug. 2. Broadcom also backstops lease payments on the $35 billion financing deal that Tan said covers Anthropic's first gigawatt, with a maximum potential liability of around $29 billion, the filing shows.
Customer concentration is climbing, too. The company estimates its top five end customers made up around 55% of fiscal third-quarter revenue, up from about 40% the year before. And Anthropic's own filing flags "potential conflicts of interest" in Broadcom's role as both hardware supplier and financing partner, according to Reuters.
The IPO might cut some of that risk, like Tan suggested on the call.
"[I]t's an open secret Anthropic is well on its way to an IPO. And with that, its investment credit will change," he said.
A raise anywhere near $100 billion would be over double the $42 billion facility.
Also, the notes could convert into Anthropic shares. But Anthropic reportedly said it doesn't expect any to be sold before its IPO, so buying Broadcom doesn't get you a piece of the listing.
At around 36 times the past year's non-GAAP (adjusted) earnings, Broadcom stock isn't cheap. But shares sell for about 18 times expected fiscal 2027 earnings, the year Broadcom's AI revenue is projected to double. Given how much money Anthropic's IPO could raise, I think that price is worth a look. I'd just buy gradually, since so much of the forecast depends on a few AI labs.
Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom. The Motley Fool has a disclosure policy.