Despite Speculation of Google's Shift, Analyst Sees Strong Ties and Momentum in Broadcom's Decade-Long Partnership

Truist Securities analyst William Stein reiterated Broadcom Inc AVGO with a Buy and a $995 price target.

Stein views press reports that AVGO will lose its critical AI computing customer, Alphabet Inc GOOG GOOGL Google as possible, but not likely. 

The analyst estimates this potential design loss relates to ~55% of AVGO's AI-related revenue, ~11% of total revenue, and ~8% of EPS. 

Stein reiterates his optimistic views on AVGO's fundamentals and themes: likely mid-single-digit organic sales growth, boosted by AI exposure and M&A, that result in double-digit dividend growth. 

Stein reiterated the CY24 EPS estimate of $47.37. He sees AVGO's potential loss of Tensor Processing Unit (TPU) revenue as relatively unlikely. 

While it is certainly possible that GOOG could bring this development internally, it is relatively unlikely for various reasons. 

Stein sees this as likely saber-rattling over pricing. The press report is highly reminiscent of other frequent market speculation that significant customers will vertically integrate supplier functionality (e.g., Apple Inc AAPL (NR) integrating RF capability). 

Any realized action has not followed most such speculative reports. 

Investors should recognize that many significant aspects of GOOG's TPU are already designed and developed internally at GOOG. 

AVGO's role is to integrate meaningful IP blocks and leverage its considerable purchasing power with the foundry on GOOG's behalf. 

This arrangement significantly mitigates GOOG's risk in the iterative development of its TPU and expects GOOG would be loath to abandon the advantage. 

AVGO has been GOOG's TPU design and manufacturing partner for several years, perhaps pushing a decade through five iterations of the TPU. 

Price Actions: AVGO shares traded higher by 2.54% at $828.66 on the last check Friday.