Broadcom (AVGO) Stock Tumbles 5% as Marvell Secures Major Google AI Chip Contract

Key Takeaways

Table of Contents

Broadcom’s shares dropped approximately 5% following Marvell’s announcement of a partnership to create custom AI chips for Google, featuring a warrant valued at up to $12.2 billion.
Despite the news, Broadcom maintains an extended partnership with Google extending through 2031 for custom AI chip supply.
The company’s AI-related revenue reached $10.8 billion in Q2 FY2026, representing a 143% increase compared to the previous year.
AVGO has gained only 10% year to date, significantly underperforming compared to AMD’s 126% rise, MRVL’s 155% surge, and NVDA’s 18% increase.
Additional headwinds include VMware security issues and concerns regarding off-balance-sheet financing arrangements.

Shares of Broadcom (AVGO) experienced a sharp decline of approximately 5% on Wednesday, opening at $359.66 following Marvell Technology’s announcement of a partnership to create custom AI chips for Google. The agreement includes Alphabet receiving a warrant to purchase up to $12.2 billion in Marvell shares.

Broadcom Inc., AVGO

Meanwhile, Marvell’s stock surged over 11% to reach $240.26 following the announcement. Alphabet shares dipped 0.7% to $341.96. Broadcom had closed at $380 on Tuesday, prior to the selloff.

The announcement sparked renewed speculation about the exclusivity of Broadcom’s partnership with Google. Broadcom has served as Google’s principal custom chip collaborator, contributing significantly to the development of Google’s Tensor Processing Units.

Earlier this year in April, Broadcom secured a multi-year contract with Google to engineer and deliver custom AI chips and related components for Google’s next-generation AI infrastructure through 2031. This agreement positioned Broadcom as a critical custom silicon provider in the AI infrastructure sector.

Marvell’s newly established position with Google challenges the exclusivity previously associated with Broadcom’s arrangement. The partnership encompasses AI inference accelerators, storage solutions, networking equipment, memory interface controllers, and near-memory computing innovations.

Strong AI Revenue Growth Continues

Broadcom’s financial performance remains robust. During Q2 FY2026, overall revenue increased 48% year over year, reaching $15 billion. AI-specific revenue more than doubled, climbing to $10.8 billion—a 143% year-over-year increase.

The semiconductor company maintains a $73 billion AI backlog spanning XPUs, switches, digital signal processors, and optical components, with scheduled deliveries over the next 18 months.

CEO Hock Tan has projected AI revenue to reach $16 billion in the upcoming quarter. Broadcom’s portfolio of six primary custom chip clients includes Google, Meta, Anthropic, and OpenAI.

Google’s anticipated capital expenditure ranging from $175 billion to $185 billion for 2026 continues to represent substantial opportunities for Broadcom. Across the industry, Big Tech companies are projected to invest over $700 billion in AI infrastructure this year, up from approximately $400 billion in the previous year.

Underperformance Relative to Semiconductor Peers

Notwithstanding impressive operational metrics, Broadcom’s equity has underperformed relative to semiconductor industry competitors. AVGO has risen merely 10% year to date through Tuesday’s market close.

In comparison, AMD has rallied 126% year to date. MRVL has climbed 155%. NVDA has advanced 18%. The iShares Semiconductor ETF (SOXX), which includes Broadcom among its holdings, is up 77% year to date and declined just 0.7% on Wednesday to $527.59.

This disconnect between Broadcom’s strong operational execution and its stock market performance represents the primary dynamic driving Wednesday’s trading activity.

Two supplementary concerns are intensifying downward pressure. Stocktwits traders have raised red flags regarding Broadcom’s off-balance-sheet financing structures and reported VMware security vulnerabilities.

An August 17 Wall Street Journal analysis highlighted that nine leading technology companies maintain approximately $3 trillion in off-balance-sheet obligations, predominantly linked to AI investments, with these commitments expanding more rapidly than conventional capital expenditure.

Broadcom is expected to release third-quarter earnings results next month.

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