Broadcom Backs Anthropic’s Racks for Up to $43 Billion

PALO ALTO, Calif., Oct. 27 — BroadcomBroadcom has put a figure on the support it is giving the $63 billion financing vehicle that will buy its chips and networking gear and lease them to Anthropic. If the customer defaults, Broadcom would owe the gap between 72.5 percent of what is then owed on the lease and what the racks fetch when sold, up to about $43 billion once they are deployed, the chipmaker said in a filing after Tuesday’s close.

The filing, a Form 8-K that EDGAR accepted at 4:23 p.m. Eastern on Tuesday, does not name the customer, but it appears to describe Monday’s transaction: it dates the arrangement Oct. 26 and describes residual value support for a newly formed vehicle, as that day’s announcement did.Item 2.03Broadcom filed under the item for the “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.” Monday’s announcement by Bank of America, Blackstone, Citi and Morgan Stanley named Anthropic, and said only that Broadcom’s “residual value support” matched the first-lien portion of the financing. Reuters, citing two sources, put that portion at about $43.5 billion.

In the filing’s words, Broadcom “arranged for financial partners to take on a portion” of certain agreements to buy AI racks based on custom accelerators it designs, and of the related leases with its customer. By this paper’s reading, the chipmaker has handed its financial partners part of the leases and kept part of the risk: if the customer defaults and the racks sell for less than 72.5 percent of what is owed, Broadcom’s shareholders make up the difference. Its quarterly report, filed in September, said it had provided a backstop and may continue to enter into similar ones, “which increases our exposure to counterparty credit risk.”

The backstop “increases as the AI racks are delivered and deployed and decreases as the customer makes payments on its lease obligations,” the filing says. In a default, the remedies to limit Broadcom’s exposure include taking over the lease, “reselling the AI racks back to the seller at a fixed price under certain conditions,” or arranging a sale. By this paper’s arithmetic, racks that fetched 72.5 percent or more of the balance would cost Broadcom nothing; racks that fetched half of it would cost Broadcom 22.5 percent of it.

Broadcom judges the danger remote. “The Backstop is a contingent liability the Company believes has a low probability of occurring, supported by the expectation of a strong profitability trajectory of the customer and the sustaining value of the underlying assets,” it wrote.

Two Backstops

It is Broadcom’s second such pledge. Its quarterly report describes a backstop tied to the AI XPV platform it launched in June with an initial $35 billion tranche, “to facilitate the deployment of more than 1 gigawatt of compute infrastructure for our customer,” whom the report does not name.AI XPVBroadcom says the platform is meant to enable more than 20 gigawatts of computing capacity for “the leading frontier AI labs through 2028,” and “bridges the gap between the current cash flows of the leading frontier AI labs and significant upfront investments required for their businesses.” That one covers the gap between 85 percent of what is owed and the racks’ value, up to about $29 billion. “The fair value of the Backstop was not material. No amounts have been paid under the Backstop,” the report said.

The new pledge covers a smaller share of the lease but a larger sum. With a similar backstop from June, Broadcom’s maximum potential liability comes to about $72 billion, by this paper’s arithmetic, more than the $59.4 billion of total debt and about three times the $24.0 billion of cash on its balance sheet at Aug. 2, the end of its latest reported quarter. The sum is a ceiling, not a forecast: each maximum applies once all its racks are deployed, deliveries under the new deal are expected to start in 2027, and each backstop shrinks as rent is paid. The two maximums need not peak at the same time.

Hard to See

On Tuesday the Bank for International Settlements published a bulletin, “Building AI on credit,” that sketches arrangements of this kind without naming Broadcom.Staff ViewsBIS Bulletins are written by the bank’s staff and, at times, other economists. The views are the authors’, and references to firms are illustrative, not a statement on their soundness, the bulletin says. “The chip vendor sells the hardware and supports its customers’ financing,” it says; the vendor “may also offer limited protection against a fall in the value of assets financed through new investment platforms.” The structures are “opaque,” its authors wrote: “Guarantees are often recorded at little or no value until payments become likely.”

What Broadcom would pay turns on the racks’ resale value. Chips “might lose value with each new generation,” the bulletin says, and “resale values could fall sharply if many seek to sell used chips at the same time.” Moody’s has called Broadcom one of the strongest large technology companies, Reuters reported on Monday, but warned that the risk would increase if several such deals were done over a short period. Broadcom has now done two.

The Backstop is a contingent liability the Company believes has a low probability of occurring, supported by the expectation of a strong profitability trajectory of the customer and the sustaining value of the underlying assets.

Broadcom gains sales: “For the chip vendor, supporting its customers’ financing sustains demand for its hardware,” the bulletin says. The lenders gain a chipmaker behind the senior debt: Broadcom’s support to the vehicle is sized to the first lien arranged by Bank of America, Citi and Morgan Stanley, while Blackstone provides the committed portion of the second lien, which ranks below it. Private-credit funding is also being sought for chips leased to customers without investment-grade ratings. On Tuesday Reuters reported, citing two people familiar with the matter, that Argentum AI, a cloud company backed by Super Micro, was in talks with a major private credit firm for $5 billion of chip financing, meant, one said, for chips leased to customers without investment-grade ratings.

Broadcom’s shares closed Tuesday at $342.33, up 4.00 percent, before the filing; AP reported that Broadcom “climbed 4% after announcing a $63 billion financing deal.”AVGONasdaq326.08▼18.92−5.5%Broadcom · Friday’s session

What to watch: whether the rating agencies comment on the two backstops, how Broadcom reports the new one with its next quarterly results, and whether Anthropic’s amended prospectus, not on EDGAR as of early Wednesday, describes the vehicle.

Daily Cortex is written with AI models, including Anthropic’s Claude, and fact-checked with OpenAI’s GPT models.