Broadcom's AI success creates concentration risk and margin pressure as the company relies on six core customers and shifts toward lower-margin custom chips.

Broadcom's AI semiconductor business is growing rapidly with management projecting revenue "in excess of $100 billion" by fiscal 2027, but the company's strategy revolves around "6 core customers," creating concentration risk if any major partner shifts spending to another supplier.

Custom chips (TPUs) driving much of the AI growth carry lower margins than other business segments. Management expects consolidated gross margin to be "down to approximately 74%" in the third quarter due to this shifting sales mix, pressuring the profitability that has justified the stock's current price-to-sales multiple of 24.4.

The CEO acknowledged competitive pressure, stating Broadcom must "fully expect that there will be some diversity of sources" for at least one key customer (Google), indicating that even deep partnerships carry risk of diversification by partners.