Broadcom's $30 Billion Apple Deal: This Chip Giant Is About More than Just AI

Key Points

• Broadcom extended its chip supply agreement with Apple through 2031, a deal Apple expects to exceed $30 billion in value.
• Non-AI semiconductors and infrastructure software together made up just over half of Broadcom's revenue last quarter, showing diversification beyond AI chips.
• Broadcom forecasts accelerating growth across AI semiconductors, non-AI semiconductors, and infrastructure software next quarter, even as its shares trade about 20% below their highs.

Semiconductor giant Broadcom NASDAQ: AVGO has made a name for itself as one of the leading players in AI chips. The industry behemoth, NVIDIA NASDAQ: NVDA, is still far and away the world's largest AI chip company. However, Broadcom’s AI sales tower over other top names like Advanced Micro Devices NASDAQ: AMD and Intel NASDAQ: INTC.

Broadcom is far more than just an AI chip company. Its latest deal with tech giant Apple NASDAQ: AAPL, which has an expected value of over $30 billion, clearly demonstrates this.

With this long-term engagement, Broadcom is locking up sales from its most critical non-AI chip customer for years to come. Apple is also the world’s leading consumer device company, once again demonstrating Broadcom's prowess in attracting the world’s technology leaders.

The deal serves as a reminder that investors should not view Broadcom solely through the AI lens. Although heavily tied to the AI trade, investors would be remiss not to recognize its standing outside of AI when evaluating the company and its stock.

Apple: Broadcom’s Non-AI Chip Engine

To understand the significance of this deal, it is important to understand the breakdown of Broadcom’s revenue streams. Broadcom reports three key revenue lines: AI semiconductors, Infrastructure Software, and Non-AI Semiconductors. Its relationship with Apple falls squarely within the non-AI semiconductor segment, with the firm as an anchor customer. Apple has been a long-standing Broadcom customer, first using Broadcom chips back in 2009 for the iPhone 3GS.

While Non-AI Semiconductors is Broadcom’s smallest segment, it is still a key revenue stream for the company. At $4.2 billion last quarter, it represented approximately 19% of its total $22.19 billion in sales.

Past statements made by Broadcom seem to indicate the firm’s Q4 2024 revenue from Apple was near $2.2 billion. Considering this, it is plausible that Apple now represents around half of Broadcom’s non-AI chip revenue and around 10% of its total revenue.

In this context, the new agreement is significant. By extending the agreement through 2031, Broadcom secures its vital non-AI customer and a large, long-term revenue stream.

Notably, this marks the second time in recent years that the companies have extended their partnership, showing Broadcom’s ability to retain key customers. In 2023, the companies announced a deal in which Broadcom would produce 5G radio-frequency components for Apple.

Now, Broadcom and Apple are renewing their radio-frequency chip partnership. Apple notes, “Broadcom will produce advanced radio-frequency components—including FBAR filters—and advanced wireless connectivity technologies at the Fort Collins facility.”

Apple expects the agreement to exceed $30 billion, with Broadcom producing over 15 billion U.S.-made chips. To support the partnership, Broadcom will invest $1.5 billion to expand and upgrade its Fort Collins facility. While this is a cost to Broadcom, it is well worth the payoff, which is orders of magnitude larger.

Beyond AI Chips: Non-AI Semiconductors and Software Are Huge Revenue Drivers

While highlighting Broadcom’s relationship with Apple, it is also worth noting the importance of its other large segment outside of AI chips: Infrastructure Software. The company’s infrastructure software business is primarily attributed to VMware. VMware provides hypervisor software, which allows companies to use computing resources more efficiently.

In its latest quarter, Broadcom’s Infrastructure Software business generated $7.2 billion in revenue, or 32% of its total sales. This helps solidify the point that investors should not only view Broadcom as an AI chip company. Together, the firm’s Non-AI Semiconductor sales and Infrastructure Software sales came in at $11.4 billion. Thus, just over half of its total sales came from sources other than AI chips. This helps provide a real level of diversification from AI revenue sources.

Additionally, Broadcom expects both its non-AI chip revenue and infrastructure software growth to accelerate significantly next quarter. It forecasts non-AI chip growth of 12% year over year (YOY), compared to 6% YOY last quarter. Non-AI chip bookings also came in at $6 billion last quarter. Broadcom notes that the figure being significantly higher than sales is a “clear indication we're on a path towards a full cyclical recovery." Meanwhile, it sees infrastructure software sales rising 31% YOY, compared to 9% YOY last quarter.

Still, with AI Semiconductor growth expected to rise by over 200% YOY, up from 143% YOY last quarter, the AI Semiconductor segment is certainly Broadcom's main growth driver.

As AI contributes the vast majority of growth, it will continue to have an outsized impact on Broadcom’s share price.

Broadcom Keeps Chugging Away Amid Share Weakness

Overall, Broadcom’s Apple deal solidifies one of its largest relationships with a single customer. Meanwhile, the company expects all three parts of its business to experience accelerating growth next quarter.

With this, the world’s second-largest semiconductor company continues to fire on all cylinders, despite shares being down about 20% from their highs.