Is Broadcom in Trouble Now That Alphabet Is Getting Chips From Marvell Too?
Key Points
After Alphabet announced an expanded long-term partnership with chip designer Marvell Technologies, shares of Broadcom slumped.
Broadcom remains the leading designer of application-specific integrated circuits by a wide margin.
Broadcom management is guiding for substantial revenue growth, which makes its recent sell-off all the more jarring.
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Broadcom (NASDAQ: AVGO) stock has dropped by more than 10% in less than two weeks, and Marvell Technologies (NASDAQ: MRVL) is to blame. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) decided to expand its artificial intelligence (AI) chip design partnership with Marvell, creating concerns that Broadcom could be edged out or face pricing pressure.
However, investors shouldn't rush to sell their Broadcom shares. While the widening of the relationship between Marvell and Alphabet shows that the AI chipmaking landscape is becoming more competitive, the whole pie is growing, and Broadcom remains the leader in custom AI chips.
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Broadcom is the Nvidia of ASICs
Although describing a company as "the Nvidia (NASDAQ: NVDA) of its industry" has become a common way to hype up a stock, it's true in Broadcom's case. This metaphor can also provide more clarity as news about Alphabet expanding its partnership with Marvell drives headlines.
Nvidia is the leading maker of graphics processing units (GPUs) -- flexible and powerful parallel processors.
Broadcom is the leading designer of application-specific integrated circuits (ASICs) -- chips that are narrowly designed to handle a single type of AI workload. Both chipmakers have market caps of more than $1 trillion and surging revenue growth fueled by the AI build-out. Customers who already love their chips are demanding more of them.
Nvidia isn't the only GPU chipmaker -- AMD (NASDAQ: AMD) also competes in the space, though it's in a far-distant second place. Nvidia continues to grow its sales faster than AMD, and its market cap is almost seven times larger. Furthermore, Nvidia makes more revenue in one quarter than AMD generates in roughly two years.
AMD is a formidable company, but the gap between it and Nvidia in GPUs is massive. Marvell occupies a similar position relative to Broadcom, which is still growing faster and generates more revenue in a single quarter than Marvell does in two years.
Alphabet can work with multiple chipmakers
Alphabet still buys plenty of Nvidia GPUs, and it's leaning on Broadcom for its custom-made chips, which it calls Tensor Processing Units (TPUs). Google's parent company will likely keep doing business with both chipmakers for many years since there's no point in fixing something that isn't broken.
The expansion of its Marvell collaboration shows a willingness to experiment, and it's also a way to diversify when chip supply gets tight. For instance, Meta Platforms buys GPUs from Nvidia and AMD. An expansion of its relationship with AMD would not mean Meta Platforms is likely to suddenly stop buying Nvidia chips. The same premise applies to Alphabet.
Interestingly, earlier this year, Meta Platforms committed to a long-term chip supply deal with AMD only a few days after committing to a long-term deal with Nvidia. As demand for AI soars, Alphabet will need more AI chips to fill its data centers. It's advantageous for the company to have multiple suppliers for ASICs rather than relying exclusively on Broadcom, but that doesn't mean it will reduce its orders of Broadcom's chips.
Broadcom's guidance still implies substantial growth for its AI chip business
Headlines grab the market's attention momentarily, but companies' fundamentals shine over time. Broadcom delivered impressive results for its fiscal 2026 second quarter. Overall revenue increased by 48% year over year, and management's guidance for its AI chip business excited investors. In that context, this piece of Marvell news doesn't look like much of a threat.
Broadcom reported 143% year-over-year revenue growth in its AI semiconductor segment, which now accounts for almost half of total sales. That growth beat guidance set earlier in the year. The idea of beating guidance is quite compelling since Broadcom CEO Hock Tan expects AI semiconductor revenue to more than triple year over year in its fiscal 2026 third quarter.
Overall revenue is expected to reach $29.4 billion in that quarter, representing a sequential jump of more than 30%. It also represents an 84% year-over-year jump. Broadcom is down by more than 20% since announcing its fiscal Q2 results. The mismatch between the stock price's recent movement and the company's strengthening fundamentals may present a buying opportunity, especially with the Marvell news intensifying the dip.
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Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Marvell Technology, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
