Broadcom Shares Fall Amid Google-Marvell Agreement

Broadcom's shares dropped around 5% on August 19 after Marvell Technology disclosed an expanded custom chip agreement with Google, which designs its own TPU chips. This move raised concerns that Google might be replacing Broadcom as its primary supplier.

However, history suggests that such announcements often take years to play out. In 2023, Bloomberg reported that Apple planned to drop a key Broadcom chip by 2025, but the company's revenue nearly doubled in the two fiscal years that followed.

Broadcom and Google have also announced a new long-term agreement to develop future TPU generations, alongside a deal to supply components for Google's AI racks through 2031. This means that Google is not replacing Broadcom entirely, but rather adding Marvell as a second silicon partner.

The concentration of Google orders in Broadcom's business raises concerns about the company's valuation. Shares cost around 60 times earnings and are 27% below their 52-week high.