What Happened:
Shares of fabless chip and software maker Broadcom (NASDAQ:AVGO) fell 5.79% in the morning session after a report by The Information revealed that Google executives were considering dropping the company as a supplier of artificial intelligence chips, known as tensor processing units (TPUs), as early as 2027. Google intends to design these TPUs in-house, potentially saving substantial costs. The report suggests that these deliberations come in the wake of a pricing dispute between Google and Broadcom over the TPUs, and Google's pursuit of Marvell Technology as a replacement chip supplier.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Broadcom? Access our full analysis report here, it's free.
What is the market telling us:
Broadcom's shares are somewhat volatile and over the last year have had 9 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 4 months ago, when the stock gained 8.52% on the news that the company's stock enjoyed bullish sentiments from Wall Street analysts who expect huge potential in the artificial intelligence market. KeyBanc Capital Markets' John Vinh expects Broadcom to benefit in the near-term from its generative AI capabilities--specifically, its TPU product. JPMorgan's Harlan Sur echoed this and praised Broadcom's custom-chip business, which he said is "gaining traction with Google for its cutting-edge AI processor chip, TPU."
Broadcom is up 45.4% since the beginning of the year, but at $804.66 per share it is still trading 12.8% below its 52-week high of $922.89 from August 2023. Investors who bought $1,000 worth of Broadcom's shares 5 years ago would now be looking at an investment worth $3,240.
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