Key Takeaways
- Shares of Broadcom dropped approximately 5% following Marvell’s announcement of a partnership with Google to create custom AI chips, featuring a warrant valued at up to $12.2 billion.
- Despite the new competition, Broadcom maintains a lasting agreement with Google extending through 2031 for custom AI chip supply.
- In Q2 FY2026, Broadcom’s AI-related revenue reached $10.8 billion, representing a 143% increase compared to the previous year.
- AVGO shares have gained only 10% year-to-date, significantly underperforming AMD’s 126% rise, MRVL’s 155% surge, and NVDA’s 18% climb.
- Additional pressure on the stock stems from VMware security issues and concerns surrounding off-balance-sheet financing arrangements.
Shares of Broadcom (AVGO) began trading on Wednesday down approximately 5% at $359.66 following Marvell Technology’s announcement of a partnership with Google to design custom AI chips, which includes Alphabet receiving a warrant potentially worth $12.2 billion in Marvell shares.
Marvell’s stock surged over 11% to $240.26 following the announcement. Meanwhile, Alphabet shares dipped 0.7% to $341.96. Broadcom had finished Tuesday’s session at $380 prior to the decline.
The partnership sparked new concerns regarding the exclusivity of Broadcom’s relationship with Google. Broadcom has served as Google’s leading custom chip supplier, contributing significantly to the development of Google’s Tensor Processing Units.
Back in April, Broadcom secured a long-term partnership with Google to design and deliver custom AI chips and related components for Google’s advanced AI racks extending through 2031. This agreement positioned Broadcom as a critical custom silicon provider in the AI infrastructure sector.
Marvell’s entry into Google’s supply chain challenges the exclusive nature of Broadcom’s position. The newly announced agreement encompasses AI inference accelerators, storage solutions, networking equipment, memory interface controllers, and near-memory computing technologies.
Strong AI Revenue Growth Continues
Broadcom’s financial performance remains robust. During Q2 FY2026, overall revenue increased 48% year-over-year to $15 billion. AI-specific revenue more than doubled, climbing to $10.8 billionāa 143% year-over-year jump.
The semiconductor company maintains a $73 billion AI backlog spanning XPUs, switches, digital signal processors, and optical components, with anticipated deliveries occurring within the next 18 months.
According to CEO Hock Tan, AI revenue is projected to reach $16 billion in the upcoming quarter. Broadcom’s six primary custom chip clients include Google, Meta, Anthropic, and OpenAI.
Google’s projected capital expenditure of $175 billion to $185 billion for 2026 continues to represent substantial opportunity for Broadcom. The broader Big Tech sector is anticipated to invest over $700 billion in AI infrastructure this year, up from approximately $400 billion in the previous year.
Share Performance Trails Semiconductor Competitors
Despite impressive financial results, Broadcom’s stock performance has lagged behind semiconductor industry peers. Through Tuesday’s close, AVGO shares were up merely 10% year-to-date.
By comparison, AMD has surged 126% year-to-date. MRVL has climbed 155%. NVDA has advanced 18%. The iShares Semiconductor ETF (SOXX), which includes Broadcom among its holdings, has risen 77% year-to-date and was down only 0.7% on Wednesday to $527.59.
This disconnect between Broadcom’s strong operational execution and its stock price trajectory represents the key dynamic in Wednesday’s market action.
Two additional factors are contributing to downward pressure on the shares. Stocktwits traders have raised concerns regarding Broadcom’s off-balance-sheet financing structures and reported security vulnerabilities in VMware products.
An August 17 Wall Street Journal article highlighted that nine leading technology companies maintain approximately $3 trillion in off-balance-sheet commitments, primarily related to AI investments, with these obligations expanding at a faster rate than conventional capital expenditure.
Broadcom is expected to announce third-quarter earnings results next month.
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