Why Broadcom Stock Slumped Today
Key Points
According to a media report, a prominent AI developer has launched a proprietary chip effort.
It has also held talks with a global electronics company to manufacture these goods.
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On Thursday, a media report that two notable companies were teaming up to develop next-generation microprocessors raised concerns about Broadcom's (NASDAQ: AVGO) future. This, in turn, inspired a cautious sell-off of the chipmaker's stock. By the end of that trading session, the company's shares had declined by more than 2%.
Chipping away
That morning, popular tech industry news site The Information published an article stating that artificial intelligence (AI) company Anthropic has started developing its own AI chips. It has also engaged in talks with Korea-based electronics giant Samsung about manufacturing them.
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Citing "three people with direct knowledge of the project" whom it did not name, the site wrote that Anthropic's chip effort is in its early stages. The company, known for its Claude AI model, is still determining how powerful the processor should be and how it might fit into server infrastructure.
The Information added that Anthropic is still some distance from entering crucial phases of the product, such as detailed design, testing, and manufacturing.
Plenty of business for all
I feel that investors were reacting negatively to this news not because they view Anthropic as a threat, but because it's a reminder that other big tech companies have their own AI chip efforts.
Notable among these are Alphabet with its tensor processing units (TPUs) and, more recently, ChatGPT developer OpenAI (which, ironically, developed its recently unveiled Jalapeno chip in partnership with Broadcom). So this high-stakes chip segment is getting more crowded over time.
That said, Broadcom still has a very strong market position and enjoys a generally positive reputation as an AI chipmaker. Also, demand is so high that, even with emerging and potentially effective competition, established players should continue to grow robustly. Personally, I wouldn't hit the sell button on the company's stock only on this report.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Broadcom. The Motley Fool has a disclosure policy.
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