Key Takeaways
- Broadcom shares declined approximately 5% following Marvell’s announcement of a custom AI chip partnership with Google, featuring a warrant valued at up to $12.2 billion.
- Despite the news, Broadcom maintains an existing long-term contract with Google extending through 2031 for custom AI chip supply.
- The company’s AI-related revenue reached $10.8 billion in fiscal Q2 2026, representing a 143% year-over-year increase.
- AVGO shares are up only 10% year-to-date, significantly underperforming AMD (+126%), MRVL (+155%), and NVDA (+18%).
- Concerns regarding VMware security vulnerabilities and off-balance-sheet financing arrangements are contributing to downward pressure.
Shares of Broadcom (AVGO) started Wednesday’s session down approximately 5% to $359.66 following Marvell Technology’s announcement of a partnership to design custom AI chips for Google, which includes Alphabet receiving a warrant potentially worth $12.2 billion in Marvell stock.
Marvell’s stock surged over 11% to $240.26 following the announcement. Alphabet experienced a modest decline of 0.7% to $341.96. Prior to the selloff, Broadcom had closed Tuesday’s session at $380.
The partnership announcement sparked renewed scrutiny regarding the exclusivity of Broadcom’s relationship with Google. Broadcom has served as Google’s principal custom chip collaborator, contributing significantly to the architecture of Google’s Tensor Processing Units.
Back in April, Broadcom secured a comprehensive long-term contract with Google for the development and provision of custom AI chips and related components for Google’s next-generation AI infrastructure through 2031. This agreement positioned Broadcom as a critical custom silicon supplier in the AI infrastructure ecosystem.
The newly announced Marvell partnership appears to challenge that exclusive positioning. Marvell’s collaboration encompasses AI inference accelerators, storage solutions, networking hardware, memory interface controllers, and near-memory computing innovations.
Strong AI Revenue Growth Continues
Broadcom’s financial performance remains robust. During fiscal Q2 2026, overall revenue climbed 48% year-over-year to $15 billion. AI-specific revenue more than doubled, reaching $10.8 billionāa 143% year-over-year jump.
The semiconductor giant maintains a substantial $73 billion AI order backlog encompassing XPUs, switches, digital signal processors, and optical components, with fulfillment anticipated over the coming 18 months.
CEO Hock Tan has projected AI revenue will reach $16 billion in the ongoing quarter. Broadcom’s core custom chip client base of six companies includes Google, Meta, Anthropic, and OpenAI.
Google’s announced capital expenditure plans of $175 billion to $185 billion for 2026 continue to represent substantial opportunity for Broadcom. Across the industry, major technology companies are projected to invest over $700 billion in AI infrastructure during the current year, up from approximately $400 billion in the previous year.
Underperformance Relative to Semiconductor Rivals
Notwithstanding impressive operational metrics, Broadcom’s stock performance has lagged behind semiconductor industry peers. Through Tuesday’s market close, AVGO had gained merely 10% year-to-date.
By comparison, AMD has surged 126% year-to-date. MRVL has climbed 155%. NVDA has advanced 18%. The iShares Semiconductor ETF (SOXX), which includes Broadcom among its holdings, has risen 77% year-to-date and declined only 0.7% Wednesday to $527.59.
This disconnect between Broadcom’s strong operational execution and underwhelming stock performance represents the core dynamic driving Wednesday’s market reaction.
Two supplementary concerns are amplifying selling pressure. Stocktwits traders have highlighted worries about Broadcom’s off-balance-sheet financing structures and documented VMware security vulnerabilities.
An August 17 Wall Street Journal investigation revealed that nine leading technology firms maintain approximately $3 trillion in off-balance-sheet obligations, predominantly linked to AI investments, with these commitments expanding more rapidly than conventional capital expenditures.
Broadcom is slated to announce its third-quarter financial results next month.
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