Broadcom stock falls on Marvell's Google AI chip deal: what's worrying investors?

Broadcom AVGO shares opened lower on Wednesday after Marvell Technology announced a deal to help Google develop custom artificial intelligence chips and gave the Alphabet-owned company an option to acquire as much as $12.2 billion of Marvell shares.

Marvell shares jumped about 7% following the announcement, while Broadcom, which has been Google's main custom ​chip partner, fell roughly 5% at the open.

The deal has raised fresh questions about Broadcom's position as Google's leading custom AI chip partner at a time when demand for specialized processors is accelerating.

Google's Tensor Processing Units, or TPUs, have become increasingly important as technology companies look for alternatives to Nvidia's graphics processing units and chips that can be optimized for specific AI workloads, particularly inference.

Broadcom plays a key role in the design and production of the TPUs.

The Marvell agreement also comes as the world's largest technology companies prepare to spend unprecedented sums on AI infrastructure.

Big Tech companies are expected to spend more than $700 billion on AI infrastructure this year, up sharply from roughly $400 billion last year.

Broadcom still has a major Google pipeline

The Marvell deal does not necessarily mean Broadcom is being pushed out of Google's AI chip supply chain.

Broadcom signed a long-term agreement with Google in April to develop and supply future generations of custom AI chips and other components for Google's next-generation AI racks through 2031.

The relationship has become one of the most important custom silicon partnerships in the AI infrastructure market.

Google's planned capital expenditure of $175 billion to $185 billion for 2026 provides a substantial demand pipeline for companies supplying its AI infrastructure.

Broadcom has also said it has a $73 billion AI backlog spanning XPUs, switches, digital signal processors and optical components, with deliveries expected over the next 18 months.

The company's recent financial results underscore how important custom AI chips have become to its growth.

Broadcom's second-quarter revenue increased 48% year over year to $15 billion.

AI revenue more than doubled to $10.8 billion, driven by demand for custom accelerators including Google's TPU and the networking components required to connect them.

Broadcom has six core custom chip customers, including Anthropic, Google, Meta and OpenAI, which are driving the company’s growth in AI revenue.

Chief Executive Hock Tan said Broadcom expects AI revenue to reach $16 billion in the current quarter, which would represent another significant increase.

Broadcom is scheduled to report its third-quarter results next month.

Why investors expect Broadcom's market share to decline?

Despite that growth, Broadcom shares have struggled. The stock is down about 25% from its June 2 record close of $481.57.

Part of the decline reflects concerns that Google's increasing efforts to develop chips internally could eventually reduce Broadcom's share of the business.

Macquarie downgraded Broadcom to Neutral from Outperform in June, setting a $437 price target.

Analyst Arthur Lai said Google was working with MediaTek while developing greater in-house capabilities after previously relying heavily on Broadcom.

Macquarie expects Broadcom's market share to decline meaningfully in 2027 and 2028.

The firm argued that both upside and downside for Broadcom appeared relatively limited, with competition potentially putting pressure on market share and margins, while the stock's valuation provided some support.

The Marvell agreement could therefore reinforce one of Wall Street's biggest concerns: that Google's enormous AI spending may benefit several semiconductor suppliers rather than Broadcom alone.

JPMorgan sees a different picture

Not all analysts share that bearish view.

JPMorgan reiterated an Overweight rating and a $580 price target on Broadcom, arguing investors should disregard reports of delays to Google's next-generation TPU v9 2-nanometer ASIC program.

The bank said Broadcom remains on track to ramp the TPU v9 program in 2028 and does not expect delays or cancellations.

JPMorgan said Broadcom was fully qualified for Google's current-generation TPU v8i 3-nanometer program in mid-2025 and is expected to begin ramping production this quarter.

The bank also pointed to Google's internal chip team working with MediaTek on the Zebrafish TPU v8t 3-nanometer program, but said Broadcom still has an 18-month lead.

The five-year agreement between Google and Broadcom is expected to cover four generations of TPU chips through v11, with commitments to increase TPU revenue annually through 2031.

Broadcom's AI opportunity remains intact

The conflicting analyst views highlight the central question facing Broadcom: whether Google's expansion of its internal chip capabilities will eventually weaken one of the company's most valuable AI relationships or instead expand the overall market for custom silicon.

Nova Capital believes the recent sell-off has gone too far.

“Overall, the earnings update for fiscal Q2 wasn’t as bad as the market perceived it,” Nova told TipRanks, pointing to Broadcom's expertise in custom chips and its leading position in high-end networking.

The firm estimates that applying about 30 times fiscal 2027 earnings could support a valuation of $585.90.

For now, Marvell's deal has reminded investors that Google's AI ambitions are large enough to support multiple chip suppliers.

For Broadcom, the challenge will be demonstrating that its long-term TPU roadmap remains intact even as Google increasingly diversifies the technology behind its AI infrastructure.