Why Broadcom Stock Was on the Rebound Today
What happened
After sliding yesterday on a report by the tech news website The Information that Broadcom (NASDAQ: AVGO) could lose Alphabet's(NASDAQ: GOOG) (NASDAQ: GOOGL) Google as a customer for its AI chips, the company's shares were bouncing back today as multiple sources pushed back on that idea.
As a result, Broadcom stock finished Friday up 2.6%, essentially recouping all of its losses from yesterday.
So what
Several Wall Street analysts questioned the notion that Google would ditch Broadcom as its tensor processing unit supplier. Truist called such a move "possible, but not likely" saying the report was more likely a price negotiation tactic and that Broadcom has substantial intellectual property and expertise.
Bank of America made a similar comment, seeing the report as "more contract negotiation rather than a major threat." The research firm also said that a similar negotiation played out between Broadcom and Apple before leading to a multiyear deal.
Reuters also reported yesterday that Google did not see any change in its relationship with Broadcom. A Google spokesperson told the news service: "Our work to meet our internal and external Cloud needs benefit from our collaboration with Broadcom. They have been an excellent partner, and we see no change in our engagement."
Now what
Investors can likely breathe a sigh of relief because Broadcom's relationship with Google appears to be safe. Truist had noted that 55% of Broadcom's AI-related revenue comes from Google, 11% of total revenue, and 8% of earnings, so the relationship is an important one for Broadcom to maintain.
The company, which might be best known for its networking solutions, is building out its position in AI, and CEO Hock Tan said in June that AI chips could account for more than a quarter of its semiconductor revenue next year.
If Broadcom can establish itself as a major player in AI, the stock seems likely to move higher, since it currently trades at a reasonable price-to-earnings ratio of 25.5.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Bank of America and Broadcom. The Motley Fool has positions in and recommends Alphabet, Apple, Bank of America, and Truist Financial. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
