Broadcom Inks Major AI Chip Deals With Google and Anthropic

The rise of artificial intelligence (AI) has sparked a data center boom needed to support the technology. While graphics processing units (GPUs) supported the first wave of AI adoption, power consumption has become an important consideration, prompting some operators to seek energy-saving alternatives.

Broadcom (NASDAQ: AVGO) has profited from this trend, as its Application-Specific Integrated Circuits (ASICs) have become a viable alternative to GPUs. These specialized chips can be customized to specific use cases to be more efficient.

The networking and AI chip specialist just signed major agreements with Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) Google and AI start-up Anthropic to design and produce the next generation of AI processors.

Image source: The Motley Fool.

Chipmaker to the AI stars

In a regulatory filing with the Securities and Exchange Commission (SEC) that dropped after the market close on Monday, Broadcom announced a new five-year deal to develop and build future versions of Google's Tensor Processing Units (TPUs). Broadcom has been a key design partner of Google's for more than a decade, and this latest agreement expands on that existing collaboration. The pair have been co-designing custom TPUs since 2016, and the seventh generation, dubbed Ironwood, is now in production.

Broadcom will also supply networking and other components used to build rack servers for Google's data centers through 2031.

In a separate deal, Broadcom and Google expanded their strategic collaboration with Anthropic. The deal will provide the AI start-up with access to 3.5 gigawatts of TPU-based compute capacity to run its Claude AI model beginning in 2027, "deepening" the company's existing presence on Google Cloud.

In a blog post heralding the agreement, Anthropic noted that "This significant expansion of our compute infrastructure will power our frontier Claud models and help us serve extraordinary demand from customers worldwide." CFO Krishna Rao called the deal a "groundbreaking partnership" and "our most significant compute commitment to date to keep pace with our unprecedented growth."

Broadcom has seen demand for its ASICs skyrocket as data center operators shift their focus from raw compute power to energy savings, and the company has profited handsomely from this shift. In its fiscal 2026 first quarter (ended Feb. 1), Broadcom generated record revenue, up 29% year over year to $19.3 billion, driving adjusted earnings per share (EPS) up 28% to $2.05.

That's likely just the beginning. CEO Hock Tan said, "We have line of sight to achieve AI revenue from chips, just chips, in excess of $100 billion in 2027." For context, the company's total revenue was less than $64 billion in fiscal 2025, and its AI semiconductor revenue was just $8.4 billion in Q1, underscoring the magnitude of the growth ahead.

For investors looking to start a position or add to an existing one, now is the time. Broadcom is currently trading at just 29 times forward earnings and has a price/earnings-to-growth (PEG) ratio of 0.44, when any number less than 1 is the benchmark of an undervalued stock.

Danny Vena, CPA has positions in Alphabet and Broadcom. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.