Evercore ISI: Broadcom’s 63 billion dollars in compute financing supports existing orders and adds guarantee-fee income

How much new demand does the 63 billion-dollar transaction bring?

Broadcom’s financial partners will provide 63 billion dollars in financing to a special-purpose entity, which will purchase Broadcom AI accelerators and networking equipment and lease them to Anthropic for five years. Equipment deliveries will begin in calendar year 2027.
The transaction supports the previously announced compute deployment for 2027 and does not represent a new order; Broadcom recognizes chip revenue when the equipment is delivered and accepted. The financing is fully underwritten and committed, but covers only part of Anthropic’s funding needs for 2027.

The 45 billion dollars in senior financing is secured by the equipment and backed by residual-value support from Broadcom; the 18 billion dollars in junior financing provided by Blackstone is backed by Anthropic’s credit and has no recourse to that support from Broadcom.
Broadcom does not need to fund the equipment purchase upfront. Instead, it charges a fee of approximately a few percentage points on the outstanding balance covered by its support, separate from chip sales revenue. Management believes the size of the transaction could make this income considerable.
Evercore ISI believes the arrangement helps Anthropic obtain financing when its own credit is not yet sufficient to support all its compute needs.

In the new transaction, Broadcom’s contingent support is calculated at 72.5% of outstanding lease obligations. Management expects exposure to peak at 43 billion dollars around the completion of equipment deployment at the end of 2027, then decline to zero on a straight-line basis over five years.
This peak exposure of 43 billion dollars is additional to the 29 billion dollars in support associated with a previous 35 billion-dollar financing. However, the support percentage for the new transaction is lower than the previous 85%.
In the event of default, the special-purpose entity can re-lease, redeploy or sell the equipment; Broadcom’s potential liability depends on the difference between the support amount and the recoverable value of the AI racks. Management believes Anthropic’s growth, demand for compute and the substitutability of the technology make the support unlikely to be triggered.

Management believes Anthropic could reach investment-grade credit quality within 6 to 12 months. If the share of financing backed by its own credit rises from 27.5% to as much as approximately 50%, the support Broadcom needs to provide could decline; future transactions will still be decided case by case.
Broadcom management expects model advances and enterprise adoption to drive demand for compute beyond 2028, but also notes that chip, memory, wafer and financing costs are rising and will ultimately be borne by AI customers.
Evercore ISI rates Broadcom Outperform with a 578-dollar price target; the firm identifies volatility in custom accelerator revenue and a contraction in corporate capital spending as downside risks. Evercore served as Broadcom’s financial adviser on this transaction.