Marvell Takes a Shot a Broadcom's Throne With Google Deal

Key Points

• Broadcom shares have fallen more than 10% from a recent high, partly due to Marvell Technology's new custom chip deal with Google.
• Marvell's agreement with Google includes warrants tied to up to $120 billion in potential purchases, signaling a possibly significant long-term relationship.
• Broadcom's upcoming earnings report, particularly its fiscal year 2027 AI semiconductor guidance, is seen as key to restoring investor confidence.

Semiconductor giant Broadcom NASDAQ: AVGO has seen its share price take a significant tumble over recent weeks, with custom AI chip diversification being a key investor concern.

Compared to a recent high of about $428, Broadcom shares have fallen by more than 10%. This is somewhat attributable to general AI semiconductor weakness, with NVIDIA NASDAQ: NVDA down moderately over the same period. However, news surrounding the company’s biggest customer and a top custom chip competitor has accelerated the decline in Broadcom stock.

Alphabet NASDAQ: GOOGL subsidiary Google is well known as Broadcom’s largest and longest-standing buyer of custom AI chips. Marvell Technology NASDAQ: MRVL has thrown a bit of a wrench into this equation, signing its own deal with Google to develop custom semiconductor products. Furthermore, Marvell isn’t the only chip company threatening Broadcom’s position, making its upcoming earnings report a key opportunity to restore investor confidence.

Marvell and Google Enter Custom Chip Collaboration

A recent Marvell SEC filing states that at the end of July, it “entered into a commercial agreement relating to the Company’s development of custom semiconductor products to Google.” It notes that the partnership “spans a comprehensive range of custom silicon programs that attach to the TPU ecosystem, including AI inference accelerators, storage controllers, network interface controllers, memory interface controllers, and near-memory compute.”

Some have characterized this as Broadcom effectively losing share within Google’s Tensor Processing Unit (TPU) development pipeline. However, it is important to note that the wording of Marvell’s filing is more ambiguous. Marvell references “custom silicon programs that attach to the TPU ecosystem” rather than saying that it will outright develop TPUs.

Still, its programs with Google include “AI inference accelerators," which aligns with Google’s description of chips like its TPU 8i. In this sense, Marvell may be developing chips that serve a similar purpose as inference TPUs, which could effectively erode Broadcom’s AI chip share at Google.

Despite this, it is key to note that Broadcom signed a TPU and networking deal through 2031 with Google in April. This deal demonstrates that Broadcom is likely to remain a key Google TPU partner for years to come.

On the other hand, the Marvell and Google deal includes potential equity investments that could tie the firms closer together and indicate that the size of their relationship could become massive.

Marvell Warrant Structure Indicates a Huge Revenue Opportunity

Marvell has issued warrants to Google that allow it to buy nearly 59 million shares of Marvell stock. With approximately 876 million shares outstanding, exercising all of these warrants would give Google over 6% ownership in Marvell. This economic alignment could give Google an added interest in directing business to Marvell. In turn, Google’s spending at Broadcom could suffer.

However, the second part of the warrant structure is more notable. The majority of the warrants vest only after Google makes discretionary purchases of custom products. They vest in 240 equally sized tranches, with each tranche requiring $500 million in product purchases. In turn, Google would need to make $120 billion in cumulative purchases from Marvell to gain access to all of the warrants.

Google has from Marvell’s fiscal Q3 2027 through the end of its fiscal year 2033 to make these purchases. (Note that Marvell’s fiscal reporting period is several quarters ahead of the calendar period, with the company currently in its fiscal Q2 2027.)

The incredible size of this figure makes it difficult to believe it will fully materialize. For reference, $120 billion is more than 13 times higher than Marvell’s last 12 months' revenue of $8.7 billion—and over 11 times higher than all of Broadcom’s $10.8 billion in AI semiconductor revenue last quarter. Nonetheless, it highlights that the Marvell-Google relationship could be very material.

Still, there is no clean dollar figure that provides a baseline of how large Marvell’s relationship with Google could be. This makes it difficult to assess how much of a negative impact the deal could have on Broadcom.

The deal is another clear signal that custom chip competition is intensifying, particularly around Google’s TPUs. Analysts believe that MediaTek OTCMKTS: MDTKF is one of Google’s alternate TPU partners. Meanwhile, rumors have surfaced that Advanced Micro Devices NASDAQ: AMD is working with Google on future TPU generations. For the incumbent leader, Broadcom, it is difficult to see these developments as anything but negative.

AI Chip Guidance Increase Could Get Investors Back on Broadcom’s Side

Amid this increased level of competition, there is one particularly powerful lever that Broadcom could pull to quell investor fears: raising its guidance. Broadcom’s decision not to raise its fiscal year 2027 AI semiconductor revenue guidance was one of the main reasons shares tanked after its latest earnings report. (Note that Broadcom’s fiscal reporting period is ahead of the calendar period, with the company currently in its fiscal Q3 2026.)

There is reason to believe Broadcom was simply being conservative. However, intensifying competition, highlighted by the Marvell-Google deal, raises concerns. Could Broadcom be uncertain about its growth prospects because of this, leading it to not increase guidance? Questions like these are likely swirling in investors' minds.

Raising its 2027 guidance significantly could go a long way in putting these fears to bed, although it would not dispel general competition concerns. This makes Broadcom’s fiscal year 2027 AI semiconductor guidance likely the biggest factor to watch in its upcoming earnings report.

Continue following MarketBeat

Add MarketBeat as your preferred source on Google to see our latest stories in your feed.

Add As Preferred Source