Broadcom stock fell Thursday after a news report said Alphabet unit Google could drop Broadcom as its supplier of artificial intelligence chips as soon as 2027. AVGO stock tumbled at the opening bell but recovered some lost ground as the trading day progressed.
The Information reported that Google has talked "extensively" about replacing Broadcom as its AI chip supplier and going with a proprietary semiconductor design. Google is seeking to reduce its costs, the report said.
Google and Broadcom have been squabbling over the price Broadcom is charging for its AI chips, known as Tensor Processing Units, the report said.
The same report said Google also is looking to shift networking chip business from Broadcom to Marvell Technology.
The news report looks like a "negotiating tactic by Google to float indirect threats to Broadcom to win better pricing," Jordan Klein, managing director for tech, media and telecom sector trading at Mizuho Securities, said in a note to clients.
AVGO Stock Sell-Off A 'Knee-Jerk Reaction'
The Broadcom stock sell-off is "a complete knee-jerk reaction to something that may or may not even happen in four years," Klein said.
On the stock market today, AVGO stock fell 2.7% to 808.36. Earlier in the session, AVGO stock was down as much as 4.2% to 795.40. Meanwhile, GOOGL stock retreated 2.5% to 130.44.
Elsewhere, CNBC's "Mad Money" host Jim Cramer called the Broadcom-Google story "patently false."
"I believe that the story that came out in The Information is patently false," Cramer said on the business network. "The relationship is deep, for multiple years, and I think they are actually good strategic partners."
In a statement, Alphabet's Google Cloud business said, "We are productively engaged with Broadcom and multiple other suppliers for the long term. Our work to meet our internal and external Cloud needs benefit from our collaboration with Broadcom; they have been an excellent partner and we see no change in our engagement."
Broadcom did not respond to a request for comment.
Replacing Broadcom Would Be Difficult
A move away from Broadcom's AI chips to a homegrown Google design would not be easy, Evercore ISI analyst Matthew Prisco said in a note to clients. Google and Broadcom are now using a fifth-generation TPU.
"There has been meaningful collaboration and leverage of (Broadcom's intellectual property) in these designs, thus any shift at this point would be a rather large endeavor," Prisco said. "We would not be surprised if this line was potentially utilized more as a pricing negotiating tactic."
Broadcom's AI chip business with Google is likely to generate about $3 billion in sales this fiscal year, he said.
Alphabet and AVGO stock are on the IBD Tech Leaders list.
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