Shares of Broadcom plummeted by 6% on Thursday, following a report by The Information, revealing Google executives’ contemplation of severing ties with the semiconductor giant as an artificial intelligence (AI) chip supplier as early as 2027. The move, if executed, could potentially yield Alphabet-owned Google savings in the billions annually, as the tech behemoth eyes in-house development of tensor processing units (TPUs).
The Information’s disclosure comes in the wake of a contentious pricing negotiation standoff between the two corporate giants. Moreover, Google is actively pursuing the replacement of Broadcom with Marvell Technology as its chip supplier for data centers, propelling Marvell’s premarket trading up by a notable 3%. Meanwhile, Broadcom’s market value has receded to $777 in light of a generally lackluster trading day.
Broadcom, regarded as the second-largest beneficiary of the burgeoning AI wave, trailing only behind Nvidia, is poised to capitalize substantially on this technological surge. CEO Hock Tan foresees AI technology contributing upwards of a quarter of the company’s semiconductor revenue in the upcoming year. In May, J.P. Morgan analysts projected Google’s contributions to Broadcom’s 2021 revenue to be a substantial $3 billion, attributed to an “order acceleration” for its TPU processors.
Tech titans such as Microsoft and Amazon.com are racing to craft bespoke chips tailored to their unique workloads, reflecting a broader industry trend. This year witnessed a spike in the cost of Nvidia’s H100 chip, a linchpin for a majority of generative AI applications, nearly doubling from its original price tag of $20,000.
As corporate juggernauts persist in their quest for enhanced cost efficiency and specialized processor chips, the enduring implications of this development on both Google and Broadcom remain uncertain. Notably, Google, Broadcom, and Marvell have yet to provide official statements in response to inquiries made by Reuters.
The artificial intelligence market continues to thrive, with tech enterprises incessantly striving for groundbreaking innovations to streamline costs and forge custom chips tailored to their specific operational demands. The plummet in Broadcom shares and potential alteration in the chip supplier landscape of Google marks the latest chapter in a series of transformative shifts that hold the power to reshape the chip industry in the long term.