Broadcom's Shares Fall Amid Google-Marvell Chip Deal, But History May Hold the Key

Broadcom's shares fell by about 5% on August 19 after Marvell announced an expanded custom chip agreement with Google. This move raised concerns that Google might be replacing Broadcom as its key supplier of AI chips. However, a look at history shows that such announcements often take years to play out and may not necessarily mean the end for Broadcom's partnership with Google.

The last time Broadcom faced a similar situation was in January 2023 when Apple reportedly planned to drop Broadcom's chip from its devices by 2025. At the time, Apple accounted for about 20% of Broadcom's net revenue, which was roughly $7 billion a year. However, instead of losing the customer, Apple announced a separate deal with Broadcom to supply 5G radio-frequency components through 2031.

Broadcom's revenue nearly doubled from fiscal 2023 to fiscal 2025, driven by strong demand for AI chips. The company's AI semiconductor revenue reached $10.8 billion in its fiscal second quarter, up 143% year over year. Management guided for $16.0 billion of AI semiconductor revenue in the fiscal third quarter, up more than 200%. Broadcom's top five customers accounted for about 40% of total net revenue in fiscal 2025.

While history suggests that transitions between suppliers take time and may not be as drastic as they seem, Broadcom's valuation is a concern. The company's shares cost about 60 times earnings and sit about 27% below their 52-week high.