Apple AAPL and Broadcom AVGO have announced a renewed chip supply agreement through 2031. The agreement exceeds USD 30 billion in chips to Apple and includes wireless products like Broadcom’s FBAR filters as well as custom chips, likely for artificial intelligence.
Why it matters: Apple is a natural fit for Broadcom’s custom AI chip business. We see Broadcom as best-of-breed for these XPUs, and this fits with our expectations for massive growth over the next five years behind new customers and higher volume at existing customers like OpenAI and Anthropic.
- The addition of custom silicon reflects Apple’s AI ambitions and will likely help the firm put custom chips in its private data centers for Private Cloud Compute for Apple devices. This would help Apple keep costs down and earn greater efficiency versus merchant graphics processing units.
- Apple has long been Broadcom’s sole anchor customer for wireless chips, and we see the FBARs as highly differentiated. This is less material to Broadcom’s results against a vast, rising stream of AI revenue but is still a key piece of the firm’s wide-moat chip portfolio.
The bottom line: We maintain our USD 650 fair value estimate for wide-moat Broadcom and USD 290 fair value estimate for wide-moat Apple. Broadcom is one of our top picks in semiconductors, while Apple looks fairly valued. The market continues to underestimate Broadcom’s immense XPU growth runway, in our view.
- We expect massive growth for Broadcom, led by rising shipments of XPUs to Google, OpenAI, and Anthropic. OpenAI and Anthropic alone could account for 20 gigawatts of capacity through 2028, meaning potentially USD 400 billion in cumulative revenue just from these two customers.
- This is less material to Apple’s growth, but it will help the firm fortress its AI capabilities. Using custom chips could help better execute compelling AI features, which would help the firm keep customers locked into its wide-moat walled garden iOS ecosystem.
