The Broadcom Inc (NASDAQ: AVGO) stock price fell 6.33% after news emerged that Google had discussed dropping the firm as its supplier for the tensor processing units (TPUs). The microchips, critical in powering Google’s AI applications, are vital to the company’s AI efforts.
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The news reports indicate that Google executives had discussed ditching the company as a supplier of artificial intelligence chips as early as 2027. Google intends to design the chips in-house, which could save it billions in costs if it does not have to pay Broadcom for the chips.
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The news comes after a months-long standoff between Google and Broadcom over the price charged by the latter for the AI chips. Google is also trying to get greater control over its AI chips by moving its design in-house.
Google has also been working to replace Broadcom as the supplier for chips that connect servers to ethernet switches in its data centres with Marvell Technologies. Marvell’s stock price edged higher premarket on the news as Broadcom’s future as a chip supplier to Google looks set to end over the next few years.
Broadcom is seen as the second-biggest winner from the generative AI boom after Nvidia. The company’s CEO, Hock Tan, had predicted in June that the technology could account for over a quarter of the company's semiconductor revenue next year.
In May, J.P. Morgan analysts estimated that Broadcom could receive $3 billion in revenue from Google in 2023 after a “recent order acceleration” by the company for its TPU processors. The analysts said that Google co-designs its AI chips with Broadcom, and the tech giant has already contracted the semiconductor firm for its sixth-generation TPUs.
The JP Morgan analysts also noted that Broadcom works with Meta Platforms on the social media firm’s custom chips. In recent years, big technology companies, from Microsoft to Amazon.com, have rushed to develop custom chips that help them save on costs and suit their specific workloads.
The push to develop custom chips by large tech firms has accelerated this year after the price of Nvidia’s H100 chip that powers most generative AI apps nearly doubled from its original cost of $20,000.
Broadcom share price.
The Broadcom (AVGO) stock price fell 6.33% to trade at $778.00 from Wednesday’s closing price of $830.57.
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