Apple CEO Tim Cook Just Announced Great News for Broadcom Stock Investors
Apple CEO Tim Cook announced an expanded partnership with Broadcom, committing over $30 billion through 2031 for custom AI chips. This long-term deal significantly reduces customer concentration risk for Broadcom, as Apple accounts for roughly 20% of its revenue. The agreement strengthens Broadcom's bull thesis, complementing strong financial performance driven by a 143% surge in AI semiconductor segment revenue.
Broadcom (AVGO +1.28%) has performed well over the past 12 months. The company's strong position in the market for custom artificial intelligence (AI) chips is proving to be a massive growth driver. What's more, Broadcom recently announced a deal with Apple (AAPL +3.95%) that arguably strengthens the bull thesis for the stock. Here's what investors need to know.
A long-term deal removes major uncertainty
Broadcom has designed and produced chips for Apple's devices for years. But recently, the two companies announced an expanded partnership. Apple committed over $30 billion to Broadcom through 2031, which is expected to lead to the production of 15 billion chips. Tim Cook, Apple's CEO, praised Broadcom's chips, calling them "essential to delivering the incredible performance and connectivity our customers expect."
Image source: The Motley Fool.
This is great news for Broadcom, and not necessarily because of the dollar amount. After all, extended over five years, the $30 billion deal comes out to an average of $6 billion annually. Meanwhile, in the second quarter of its fiscal year 2026, ending on May 3, Broadcom's revenue was $22.2 billion. So, the money Broadcom will get from this deal, while not insignificant, isn't exactly a game changer.
However, there are other dynamics at play that investors should pay attention to. For instance, one of the strongest arguments against Broadcom's bull thesis is customer concentration. According to some estimates, Apple alone accounts for roughly 20% of the company's revenue. What would happen if Apple suddenly stopped buying chips from Broadcom? The company's shares would almost certainly fall off a cliff. But investors no longer have to worry about that, at least for the foreseeable future.
The expanded partnership provides a degree of security that Broadcom lacked before, by reducing the risk of sudden revenue loss from one of the company's biggest customers. And that's great news for the company and its shareholders.
NASDAQ: AVGO
Key Data Points
Why Broadcom stock is a buy
Broadcom has signed other deals that provide it with significant revenue visibility over the next few years, including with Meta Platforms (META +3.06%). The chipmaker's revenue and earnings are also growing at a good clip, primarily thanks to its work in custom AI chips. Broadcom's second-quarter revenue of $22.2 billion jumped by 48% year over year, with revenue from its AI semiconductor segment soaring 143%.
The company expects sales growth to accelerate within this unit. Broadcom projected that its AI chip revenue would soar by over 200% year over year during its upcoming quarter. It could be just the beginning. As companies increasingly seek cost-effective alternatives to GPUs (Graphics Processing Units), demand for Broadcom's products should remain strong in the medium term. Broadcom's shares jumped after it announced its expanded deal with Apple, and the stock is up 40% over the past 12 months. But it isn't too late to invest.
