Broadcom vs. Marvell: Broadcom Stock Is Still the Better Buy After Alphabet's Announcement
Key Points
Broadcom's revenue growth should feel little impact from Alphabet's deal with Marvell.
Broadcom is the much cheaper stock, and the company has a huge growth opportunity still in front of it.
Shares of Marvell Technology (NASDAQ: MRVL) shot higher following the news this week that Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) would extend a partnership with Marvell related to its tensor processing units (TPUs). Meanwhile, Broadcom (NASDAQ: AVGO), which is Alphabet's main design partner for TPUs, saw its shares sink on the announcement.
As part of the deal, Marvell will provide Alphabet with a variety of components within its TPU architecture. These include things like AI inference accelerators, storage controllers, network interface controllers (NICs), and near-memory compute. In return, Marvell has given Alphabet warrants to buy 58.97 million shares of its stock at a price of $206.65 per share. The warrants vest in tranches based on every $500 million the cloud computing and search giant spends with it.
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Despite the deal, Broadcom still looks like the better buy among these two semiconductor stocks.
Broadcom
Broadcom helped Alphabet develop its TPUs more than a decade ago, and it has been the company's main chip design partner ever since. Earlier this year, it signed a contract with the company to remain its primary design partner through 2031. The two companies also later agreed to a deal to supply Anthropic with TPUs, as well.
The Marvell deal will not impact this, but Alphabet has clearly been adding other partners to its TPU ecosystem. For upcoming TPU iterations, the company has already decided on two versions of its chips, with one for high-performance training and another version for inference. Broadcom is the main partner for the former, while MediaTek has taken the lead for the inference chips. Given the components involved, Alphabet's deal with Marvell should impact MediaTek more than Broadcom.
It's also been rumored that Alphabet is working with Advanced Micro Devices, capitalizing on its central processing unit (CPU) expertise for another future TPU version for agentic AI workloads. If true, Alphabet is looking to really broaden its TPU ecosystem. That ultimately should be good for Broadcom, as it is still a major supplier of networking components, like high-bandwidth Ethernet and optical interconnects.
At the same time, Broadcom still has a huge TPU opportunity in front of it, and it is helping other major AI data center players including Meta Platforms and OpenAI to develop their own custom chips. Broadcom management expects its custom chip business to contribute over $100 billion in revenue in fiscal 2027, and anticipates that business continuing to grow strongly in the year to come.
Trading at a forward P/E of around 18.5 times fiscal 2027 estimates, Broadcom stock looks like a bargain given its expected growth.
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Marvell
Marvell has been one of the hottest large-cap tech stocks in the market over the past year, with its shares more than tripling. However, its performance has largely been due to excitement around its connectivity business, as optical interconnects are starting to replace copper wires within AI data centers. It projects its interconnect revenue will surge 70% this year, with overall revenue climbing 40%.
The company's custom chip business has also been strong, largely due to its role in Amazon's Trainium chips. However, there has been speculation that it will lose its lead role with Amazon to Taiwanese semiconductor company AIchip in future iterations. This deal with Alphabet, along with one with Microsoft for its new Maia chip, could help replace any lost Amazon revenue or compensate for reduced growth elsewhere.
Marvell is a solid stock, and the company's optical interconnect business should continue to see strong growth. However, the stock reached a pretty frothy valuation, trading at a forward P/E ratio of 57.5 and 37 times next year's expected earnings.
With Broadcom trading at a much cheaper valuation and still anticipating strong growth that should not be materially impacted by the Marvell-Alphabet agreement, the stock looks like the better buy in my view.
Geoffrey Seiler has positions in Advanced Micro Devices, Alphabet, Amazon, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Broadcom, Marvell Technology, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.