Broadcom Has Seen Its Biggest Customer Drop a Key Chip Before. History Says What the Stock Did Next.

Marvell Technology (NASDAQ:MRVL) disclosed an expanded custom chip agreement with Google on Aug. 19, complete with a warrant tied to as much as $120 billion of future purchases -- and investors in Broadcom (NASDAQ:AVGO) treated the news as their problem. Broadcom, which designs the in-house TPU chips of Google parent Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), saw its shares fall about 5% that morning.

The logic of the selling was straightforward. Google, arguably the most important customer in Broadcom's custom artificial intelligence (AI) chip business, is deepening its relationship with Broadcom's most direct rival.

But Broadcom has faced this kind of headline before -- a marquee customer moving to design Broadcom parts out of its products. I think it is worth walking through what happened next before concluding anything from a one-day drop.

Image source: The Motley Fool.

A selective sell-off

The move itself deserves scrutiny. Chip stocks fell unevenly on the morning of Aug. 19. AMD dropped about 4%, Nvidia was roughly flat, and Marvell itself jumped about 8%. The pressure landed hardest on Broadcom, the supplier with the most Google work at stake -- consistent with investors repricing who wins Google's future orders rather than fleeing the sector.

And Google has not left Broadcom. The verified news is an expansion of work with Marvell.

Broadcom itself announced in April a new long-term agreement to develop Google's future TPU generations, alongside a deal to supply components for Google's AI racks through as late as 2031. Google appears to be adding a second silicon partner, not replacing its first.

The Apple precedent

The last time Broadcom faced a design-away scare, the customer was its biggest one. In January 2023, Bloomberg reported that Apple (NASDAQ:AAPL) planned to drop the Broadcom combination chip that handled Wi-Fi and Bluetooth in its devices by 2025 and use an in-house design instead. Apple accounted for about 20% of Broadcom's net revenue in fiscal 2022 and 2023, according to Broadcom's annual filing -- roughly $7 billion a year at the time.

The displacement happened, eventually. Apple introduced its own N1 wireless chip in the iPhone 17 lineup in September 2025, nearly three years after the report.

But three other things happened along the way. Four months after the report, Apple announced a separate multiyear, multibillion-dollar deal for Broadcom to keep building 5G radio-frequency components, including filters, in the U.S. Losing one chip didn't mean losing the customer -- and last month Broadcom disclosed an agreement extending that chip supply relationship through 2031. Broadcom's revenue then nearly doubled, from $35.8 billion in fiscal 2023 to $63.9 billion in fiscal 2025, as AI demand overwhelmed everything else. And the stock? It closed at a split-adjusted $57.69 the day the Bloomberg report ran. It trades near $362 as of this writing, up more than 500%.

This time the risk sits in the AI business

So the precedent says these announcements take years to play out. The Google-Marvell agreement fits that pattern. Its vesting schedule stretches to January 2033, and the disclosure describes chip programs built to plug into Google's TPU ecosystem, not a wholesale replacement of it.

Still, the parallel is not perfect, and the difference matters. The Apple risk sat in wireless components, a mature side business, while AI custom chips drove the growth that swamped it. Google sits inside that AI franchise itself. Broadcom's AI semiconductor revenue reached $10.8 billion in its fiscal second quarter (the period ended May 3, 2026), up 143% year over year on total revenue that rose 48% to $22.2 billion, and net income nearly doubled to $9.3 billion. Management guided for $16.0 billion of AI semiconductor revenue in the fiscal third quarter, up more than 200%.

Broadcom doesn't disclose Google's share, but its top five customers accounted for about 40% of total net revenue in fiscal 2025. A shift in Google's orders could touch the growth line investors are paying for, not a side business.

To me, that concentration is worth taking seriously at Broadcom's valuation. Even after the decline, shares cost about 60 times earnings and sit about 27% below their 52-week high.

History's lesson from the Apple episode is that these transitions are slow and partial -- Broadcom grew straight through the last one. The same patience, I'd argue, applies here in both directions: the Aug. 19 drop doesn't prove the damage, and Broadcom's April agreement doesn't prove there is none. What settles it is Broadcom's AI revenue in the quarters ahead, and that evidence arrives on earnings days, not in a one-day sell-off.

Daniel Sparks and his clients have positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Broadcom, Marvell Technology, and Nvidia. The Motley Fool has a disclosure policy.