title.Broadcom and Costco’s lofty valuations give little room for error in high‑stakes stocks

When a stock’s valuation hinges on high‑growth sectors such as artificial intelligence, even a small ripple in the ecosystem can trigger outsized market moves. That reality is playing out for two heavyweight names this week: Broadcom (AVGO) and Costco (COST). Both companies sport price‑to‑earnings multiples that sit well above the S&P 500 average, and both are grappling with distinct, high‑stakes challenges that could reshape investor sentiment.

Broadcom: AI Backlog, Margin Pressure, and a Potential OpenAI Delay

Broadcom’s custom AI‑chip business is a key revenue driver for the tech giant. Its client list reads like a who’s‑who of the hyperscaler world—Alphabet’s Google, Meta Platforms, ByteDance (TikTok), and OpenAI. In addition, AI‑focused startup Anthropic recently disclosed a $10 billion contract, underscoring Broadcom’s deep‑ening foothold in the AI infrastructure market.

During the company’s recent earnings call, CFO Kristen Spears highlighted a $73 billion AI backlog that includes orders for the firm’s AI server systems. The headline number sent Broadcom’s shares up $15 in after‑hours trading, reinforcing the market’s enthusiasm for the “AI boom.” However, Spears also revealed that the AI‑system segment carries lower margins due to pass‑through costs on components and services. The margin drag was enough to erase that early rally; the stock fell to $380 and closed the next day at $359.93, a $35 slide from its after‑hours peak.

Compounding the margin issue is a broader supply‑chain uncertainty surrounding OpenAI’s data‑center build‑out. Bloomberg reported that Oracle—contracted to provide a $300 billion, five‑year compute commitment to OpenAI—has pushed back the opening of some facilities to 2027‑2028, citing labor and material shortages. Oracle’s own statements insist that contractual milestones remain on track, but the discrepancy raises a critical question: If Oracle’s data‑center rollout stalls, could that delay the flow of AI‑chip orders from Nvidia and, by extension, Broadcom’s custom‑chip customers?

Investors must also weigh the competitive dynamics with Marvell Technology. Rumors suggest Broadcom is in talks with Microsoft about moving away from Marvell’s custom‑chip solutions, while Marvell’s CEO Matt Murphy has publicly denied any loss of business to Broadcom. The outcome of this rivalry will influence the allocation of AI‑chip spend across the hyperscaler ecosystem.

Despite these headwinds, Broadcom remains up 55 % year‑to‑date. Yet its forward P/E of approximately 42 leaves little room for error. The stock’s volatility underscores a classic high‑multiple dilemma: growth expectations are high, but any hint of margin compression or supply‑chain delay can prompt a sharp correction. For now, the consensus leans toward a “hold” stance—owning the position but pausing additional buying until the AI‑backlog quality and OpenAI‑related timelines become clearer.

Costco: Membership Renewal Trends and a Compressed Valuation

Costco’s valuation tells a similar story, with a forward P/E of roughly 43 versus the S&P 500’s 22. A year ago the retailer’s multiple was even higher, north of 50, making the current level appear modest by comparison. However, the multiple has been under pressure because earnings have merely met, not exceeded, analyst expectations.

The core of the concern lies in membership renewal rates. Recent quarters have shown a subtle but persistent dip, particularly among younger shoppers who tend to sign up online rather than in‑warehouse. While the company attributes this to a generational shift in purchasing behavior, the trend flags potential churn in a business model that relies heavily on recurring membership fees.

Beyond renewals, Costco’s quarterly performance revealed “lumpiness” in sales—a pattern that improved toward the period’s end but still suggests volatility in consumer demand. CFO Gary Miller‑Chip, a recent hire from Kroger, described consumer behavior as “choiceful,” a euphemism that analysts have read as a sign that price sensitivity may be creeping into Costco’s traditionally value‑oriented base.

Comparisons to Walmart (WMT) are inevitable. Walmart trades at a forward P/E near 40, offering a benchmark for what a high‑multiple retailer can sustain. Costco’s margins and comparable‑sales growth need to outpace both the market and its direct competitor to justify the premium. So far, the company has delivered solid but unspectacular results, leaving the multiple vulnerable to compression.

Adding to the complexity are external factors: ongoing tariff disputes with the U.S. administration and recent diversity‑initiative controversies have drawn public scrutiny. While these issues are unlikely to affect the bottom line directly, they could influence brand perception and, by extension, membership sentiment.

Given the confluence of a high valuation, modest earnings growth, and early signs of membership fatigue, the prudent approach is to monitor renewal metrics closely and assess whether Costco can reignite its growth narrative through online initiatives and enhanced advertising—areas where Walmart has already made significant strides.

Bottom Line

Broadcom and Costco both sit at the intersection of lofty valuations and emerging risk factors. Broadcom’s AI backlog remains massive, but margin pressure and possible delays in OpenAI’s data‑center rollout inject uncertainty. Costco enjoys a loyal membership model, yet slipping renewal rates and competitive pressures from Walmart could compress its premium multiple.

For investors, the key takeaway is caution tempered with conviction. Broadcom’s fundamentals are strong enough to merit a hold, but additional exposure should await clearer signals on margin stability and supply‑chain execution. Costco’s position is more fragile; ongoing monitoring of membership renewal trends and comparable‑sales performance will be essential before committing further capital.