Broadcom plunged 20%. What is the market afraid of?

On August 11, Bank of America credit analyst Tom Curcuruto issued a short downgrade report. He lowered Broadcom’s bond rating from “overweight” to “market weight.”

Note, this is not a stock rating but a credit-side rating—in other words, what he’s concerned about isn’t whether Broadcom is profitable, but whether Broadcom’s balance sheet can withstand what it’s doing.

There’s one figure in the report: $370 billion.

This is his estimate of the maximum remaining Residual Value Guarantee (RVG) exposure Broadcom could bear in a financing arrangement called the “AI XPV Platform” by mid-2029. If every customer defaults simultaneously and all the chips become worthless, Broadcom’s theoretical maximum loss could reach $42 billion.

Three days after the news came out, Broadcom’s share price dropped nearly 6%, falling below $400, marking a drawdown of more than 20% from the historical high in June.

What does $370 billion mean? Broadcom’s entire company has a market capitalization of around $2 trillion, and total on-balance sheet debt is $64.9 billion. An off-balance-sheet contingent guarantee exposure could swell to nearly one-fifth of its market cap!?