Broadcom's $200 billion Samsung pact strengthens AI chip bet after Alphabet earnings

Alphabet Inc.'s Q2 earnings reinforced the case for sustained AI infrastructure spending, benefiting chip supplier Broadcom Inc.

"We remain focused on building the AI infrastructure that powers our products," Alphabet Chief Executive Officer Sundar Pichai said in the earnings release.

Broadcom designs custom application-specific integrated circuits for major cloud providers, including Alphabet's Google. The company last week signed a memorandum of understanding with Samsung Electronics valued at more than $200 billion through 2030, covering memory chips, contract manufacturing and advanced packaging, Samsung said in a statement. The pact includes sub-2-nanometer process technology for Broadcom's next-generation communications chips and collaboration on high-bandwidth memory products.

The agreement positions Broadcom to secure advanced manufacturing capacity as cloud providers race to expand AI data centers. Samsung, seeking to narrow its gap with industry leader Taiwan Semiconductor Manufacturing Co., will manufacture Broadcom's custom chips using its most advanced nodes.

Broadcom's custom AI chip business has emerged as a growth engine, with the company supplying both networking silicon and ASIC design services to hyperscalers. The company is one of the world's leading designers of custom AI accelerators, according to Samsung's statement.

Samsung co-Chief Executive Officer Jun Young-hyun recently discussed next-generation foundry cooperation with Nvidia Corp. Chief Executive Officer Jensen Huang, including future HBM4E and HBM5 memory products, Samsung said last month. The South Korean chipmaker expects to secure more advanced 2-nanometer foundry orders in the near term after discussions with major technology companies.

Alphabet's Q2 results, reported July 26, showed the company continuing to invest in AI infrastructure. Google's capital expenditures have risen as the company builds out data centers to support its Gemini AI models and cloud services.

The global race to build AI infrastructure has driven a surge in demand for custom chips and advanced memory. Broadcom, as a key supplier of both networking and custom compute silicon, sits at the center of this spending cycle.

The Alphabet earnings report indicates that hyperscaler AI spending remains on an upward trajectory, a positive indicator for Broadcom's custom chip business. Investors will watch Broadcom's own Q3 earnings report, expected in late August, for updated guidance on AI-related revenue.

This article is for informational purposes only and does not constitute investment advice.