In a dramatic reshuffling of the AI chip landscape, Broadcom Inc. (NASDAQ: AVGO) saw its market value shrink by approximately $87 billion on Wednesday after Alphabet Inc.'s Google decided to broaden its custom silicon collaboration with Marvell Technology Inc. (NASDAQ: MRVL). The news triggered a sharp rotation among investors, with Broadcom closing down 4.61% at $362.48, while Marvell surged 9.85% to $237.27.
Unequal Value Transfer
The market reaction was notably lopsided. Preliminary estimates based on closing market capitalizations suggest that Broadcom's loss of roughly $87 billion was more than five times the approximately $17 billion gain seen by Marvell. Alphabet's shares (NASDAQ: GOOGL) moved only marginally, closing at $344.72, up 0.15%.
This disparity underscores the market's perception that Google's expanded partnership with Marvell could come at Broadcom's expense, even as the overall custom chip pie continues to grow. Morningstar analyst William Kerwin described the deal as a “big win for Marvell,” framing it as part of a “growing pie” rather than a direct displacement of Broadcom.
Deal Details
Under the agreement, Google holds a warrant to purchase as many as 58.97 million Marvell shares at an exercise price of $206.58 per share—well below Marvell's closing price of $237.27. If fully exercised, the warrant's value could reach $12.18 billion. Additionally, the collaboration could generate as much as $120 billion in revenue for Marvell by the end of fiscal 2033, contingent on achieving performance milestones.
No official cancellation of Broadcom's work with Google has been announced. Broadcom's existing agreement with Google remains valid through 2031, and current projects are reportedly unchanged. Still, investors are wary that Google may shift additional custom chip projects to Marvell beyond what has been publicly disclosed.
AI Chip Market Under Scrutiny
The news arrives amid heightened scrutiny of the AI chip sector, particularly regarding financing and supply chain dynamics. Broadcom's AI XPV platform, which recently launched with $35 billion in backing from Apollo Global Management (NYSE: APO) and Blackstone Inc. (NYSE: BX), aims to support deployments of over 20 gigawatts of computing power by 2028, with the initial portion earmarked for Anthropic.
Broadcom's AI chip revenue remains robust, reaching $10.8 billion in the second quarter—a 143% year-over-year increase. CEO Hock Tan has projected third-quarter growth of over 200% to $16 billion. However, the company faces potential vulnerabilities from its sizable financing arrangements, which could lead to issues with customer credit or lease payments.
Market Data and Analyst Outlook
At the close on August 19, Broadcom's market capitalization stood at $1.81 trillion, with a trailing P/E of 63.2. Marvell's market cap was $189.17 billion (P/E 80.07), while Alphabet's was $4.19 trillion (P/E 17.28). Over the past month, Broadcom shares have fallen 4.30%, while Marvell has surged 22.93% and Alphabet has declined 1.76%. On a one-year basis, Broadcom is up 19.86%, Marvell has skyrocketed 210.56%, and Alphabet has gained 69.79%.
Analyst sentiment remains bullish on all three names. Broadcom carries a Strong Buy consensus with an average price target of $527.88, implying 45.63% upside. Marvell also has a Strong Buy rating, with a target of $256.91 (8.28% upside). Alphabet's consensus is Strong Buy, with a target of $427.52 (24.02% upside).
Upcoming Earnings and Risks
Investors will get more clarity soon: Marvell is scheduled to report earnings on August 27, followed by Broadcom on September 2. The market will be looking for evidence that Google's broader supplier base is impacting Broadcom's revenue, rather than merely shifting bargaining leverage.
Risks remain on both sides. Google could move additional custom-chip projects to Marvell, and Broadcom's large financing arrangements could expose it to credit risks. Conversely, a rapid increase in AI demand could provide enough opportunity for both suppliers, suggesting that Wednesday's selloff may have been overdone.
In premarket trading on Thursday, Broadcom edged up 0.86% to $365.60, while Marvell eased 0.42% to $236.27, indicating a modest pullback after the sharp rotation.
