BofA Broadcom Inc XPV uncertainty to remain an overhang

Broadcom Inc. XPV uncertainty to remain an overhang; Downgrade to Marketweight Rating Change - Credit

Downgrade to Marketweight on XPV uncertainty 10 August 2026

We are downgrading our rating on Broadcom (issuer & bonds) to Marketweight from High Grade Credit Overweight due to uncertainties around the XPV platform established with Blackstone United States and Apollo. In light of the uncertainties with this platform, we view the bonds as fairly Technology valued at +30-45 bp wide to non-XPU A-rated semis which have lagged semis by ~20-30 Tom Curcuruto, CFA bp since early June. AVGO has managed its balance sheet conservatively (1.3x gross Research Analyst BofAS leverage) with substantial growth potential (revenue & FCF +3-4x from FY25 to FY28). However, we believe credit spreads will continue to face headwinds as the XPV platform

grows, partially from perceived credit risk (we explore below) but mainly from unfavorable spread technicals as investors potentially look through XPV financings to Broadcom Inc. (AVGO) AVGO on ultimate parent risk and/or hedge via CDS. Key uncertainties are end-customer Key Data 2025A 2026E 2027E concentration, the amount and features (i.e. RVG) of future financings and the extent and Operating (US$ mm) pace of growth in the XPV platform. However, given FCF growth potential, likely cash Revenues 63,887 105,879 168,227

build assuming modest stock buybacks, and debt tenders in June, it is unclear if AVGO Adj EBITDA 43,004 72,827 114,539

could reduce balance sheet debt more aggressively to manage its strong credit profile, FCF 26,914 57,603 97,852

which would be a positive for bonds. We expect more clarity with results in early Sept. Balance Sheet (US$ mm) We are raising 2026 revenue and EBITDA estimates by 10% and 13%, respectively, to Cash 16,178 35,239 61,041 reflect earnings and guidance. Total Debt 65,136 59,755 59,755 Gross Leverage 1.5x 0.8x 0.5x Modeling out the XPV platform: risk likely manageable Net leverage 1.1x 0.3x 0x The XPV platform jointly announced by Broadcom, Blackstone and Apollo began with a Source: Company filings & BofA Global Research. 1GW+ tranche valued at $35B, with XPUs leased by Anthropic, and plans to grow the platform to 20GW through ’28. Broadcom is providing a backstop/residual value guarantee on a majority of the debt financing (but not providing direct seller-financing) and estimates the senior debt on the initial $35B XPU tranche (~1.1GW est) has a GW = gigawatts maximum loss exposure of $29B (immediate 100% default at 0% recovery on full RVG = residual value guarantee funding). To be more precise on loss exposure (and slightly less unrealistic), we have TPU = tensor processing unit staged the funding ratably over 16 monthly rounds, assuming 5-year debt amortization, 20% price declines/5-year chip life, and a 25% price shock at default at each point over ASIC = Application-Specific the life of the lease. We estimate maximum RVG exposure peaks at $26B in Sep ’27 and Integrated Circuit max loss exposure (collateral value less RVG) of $2.9B. If we add subsequent 2GW deals XPU is what Broadcom calls its chips on a quarterly basis (since its through ‘28), max RVG across the 20GW (at ~$32B/GW) reaches $370B in mid-‘29, with max loss exposure of $42B at 100% default and $10.5B at 25% default rate assumption. Relative to potential cash build and AVGO’s non-AI earnings, we believe this level of loss would be manageable for AVGO from a credit perspective, with gross leverage rising to 2.2x at YE’28 (excluding est. AI EBITDA). This assumes a buyer of chips at the shocked price. Details on pages 2-5.

Being a credit donor requires strong credit ratings AVGO’s strong credit ratings (A3/A-/A-) enable its participation in the XPV platform (chips + RVG), in our view. However, it is unclear how the ratings agencies will adjust credit metrics for the RVG exposure. Initially, S&P intends to treat the RVG as debt-like but as the platform grows, it’s unclear if methodologies could evolve to become scenario-based. We expect the agencies’ three positive outlooks to be at risk.

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