Whipsaw In Broadcom Stock On Google Chip Supply Drama

The Information published a story on September 21, 2023, that Google wants to lower the cost of TPU chips and so it may produce its own chips in-house rather than contract it out to Broadcom.

A TPU (Tensor Processing Unit) microchip is a specialized type of microchip designed by Google specifically for accelerating machine learning workloads. It is a custom-built application-specific integrated circuit (ASIC) that is optimized to perform various operations involved in deep neural networks. TPUs are highly efficient in performing matrix multiplication and other computations required for training and executing artificial intelligence models. They are designed to handle large-scale data and provide significant acceleration compared to traditional CPUs or GPUs. TPUs are used extensively within Google’s data centers to power various machine learning applications and services.

Broadcom stock gapped lower on that news but then recovered on September 22, 2023, when an analyst suggested that this was just a negotiations tactic by Google.

What is a Whipsaw Pattern?

A whipsaw chart pattern refers to a market movement where the price of an asset rapidly changes direction multiple times, resembling the motion of a whip. It is characterized by consecutive, alternating up and down price movements, often resulting in false signals or breakouts. Whipsaw patterns can occur in various financial markets and timeframes, making it challenging for traders and investors to accurately predict and profit from market trends.

Broadcom losing Alphabet ‘not likely,’ says Truist

According to William Stein of Truist, The Information’s report on September 21, 2023, that Alphabet, Broadcom’s (AVGO) main client for artificial intelligence computing, might leave the company is possible but not likely. According to Truist, the potential design loss affects 8 percent of earnings, 11 percent of total revenue, and 55 percent of AI-related revenue for Broadcom. Although it is possible, William Stein believes it is unlikely that Google will internalize this development. He believes this to be price-related sabre-rattling and points out that Broadcom provides a significant amount of intellectual property and expertise. On AVGO stock, Truist kept a Buy recommendation.

BofA says Google news looks like ‘negotiation,’ not threat to Broadcom

On September 22, 2023, in response to a media report that claimed Google was considering insourcing the TPU AI chips that it currently purchases from Broadcom, possibly as early as 2027, BofA stated that this appeared to be more of a contract negotiation than a serious threat to Broadcom’s technical expertise. BofA claims that replacing Broadcom’s critical SerDes IP could be challenging, which is a major factor in Google’s continued partnership with the company since 2016. BofA also points out that a comparable contract dispute between Broadcom and Apple earlier this year that was covered by the media ultimately led to the renewal of a multiyear agreement. On shares of Broadcom, BofA maintained a Buy rating.