Why Broadcom Stock Climbed Today
Key Points
Broadcom is co-designing Meta's custom AI accelerators.
The chipmaker is well placed to profit from the AI boom.
- 10 stocks we like better than Broadcom ›
Shares of Broadcom (NASDAQ: AVGO) rose on Wednesday after the semiconductor colossus struck a deal to supply Meta Platforms (NASDAQ: META) with artificial intelligence (AI) technology.
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Joining forces
Broadcom and Meta are working together to create the infrastructure needed to bring advanced generative AI capabilities to the social media titan's 3.6 billion customers. The two companies will co-design custom AI accelerator chips to help power Meta's herculean AI model training and inference efforts.
The chips that will underpin Meta's cutting-edge AI data centers will be built on Broadcom's XPU platform. Their custom design aims to blend performance with a lower total cost of ownership compared to less specialized chips.
Broadcom's optical connectivity products and other networking solutions will also help to provide efficient, low-latency performance for AI workloads.
The agreement includes an initial one gigawatt (GW) of capacity, as part of a multiyear, multi-gigawatt rollout.
"Meta is partnering with Broadcom across chip design, packaging, and networking to build out the massive computing foundation we need to deliver personal superintelligence to billions of people," Meta CEO Mark Zuckerberg said in a press release.
Aligning with the cloud kings
By partnering with Broadcom to develop its own custom AI chips, Meta is diversifying its supply chain and reducing its reliance on chipmakers like Nvidia and Advanced Micro Devices. That should moderate some of these chip suppliers' pricing power -- and enable Meta to optimize its own chips for its specific needs.
Broadcom, in turn, is serving as an increasingly valuable partner for Meta and other cloud computing giants. That should allow Broadcom to claim a growing share of the AI boom in the coming years.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
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