Why Broadcom Stock Jumped Higher This Morning

Shares of Broadcom (NASDAQ: AVGO), a semiconductor designer, were rising today after the company said late yesterday that it will continue designing new artificial intelligence processors for Alphabet's Google over the next five years.

Broadcom added to the good news by announcing an expanded collaboration with the AI company Anthropic, in which Broadcom will provide more AI compute capacity.

Both pieces of news helped Broadcom's stock jump by as much as 5% this morning, and had gained 2.8% as of 10:48 a.m. ET.

Image source: Getty Images.

Expanding AI agreements

Broadcom said in an SEC filing yesterday that it will design upcoming versions of Google's Tensor Processing Units (TPUs) and networking components for the tech giant's artificial intelligence system through 2031.

That's a huge win for Broadcom, and it comes at the perfect time. Investors have been increasingly worried -- maybe a little too much -- that AI companies will soon slow their hardware spending. That pessimism, combined with geopolitical instability, has left Broadcom's shares down about 6% year to date.

But the extended agreement with Google shows that Broadcom's chip designs are in high demand and will be for years.

Adding to the optimism today is the fact that Anthropic said in a blog post yesterday that it will access 3.5 gigawatts of Broadcom and Google's TPU-based AI compute capacity beginning next year. While no revenue amount was specified in the details, Mizuho analyst Vijay Rakesh estimated that Broadcom could make $21 billion in AI revenue from Anthropic this year and $42 billion in 2027. Krishna Rao, CFO of Anthropic, said in the blog post,

"This groundbreaking partnership with Google and Broadcom is a continuation of our disciplined approach to scaling infrastructure: we are building the capacity necessary to serve the exponential growth we have seen in our customer base while also enabling Claude to define the frontier of AI development."

Broadcom is a clear AI leader

While AI hardware spending likely won't continue at the same levels we've seen over the past few years, Broadcom's recent expansion of AI agreements with Google and Anthropic should ease investor fears of an imminent spending slowdown.

Broadcom is already an important supplier of AI infrastructure, and these new agreements prove the company is expanding its position as an artificial intelligence leader.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.