AI chip industry sees turbulence as Google weighs manufacturing options

Thursday’s stock market slump was marked by significant movements in the artificial intelligence (AI) chip industry. Investor discomfort with the Federal Reserve’s commitment to battling inflation and the potential for prolonged elevated interest rates led to a slump in stock markets, with futures on major market benchmarks falling by as much as 1% on Thursday morning, extending Wednesday’s losses.

In this climate, Broadcom (NASDAQ:) and Marvell (NASDAQ:) Technology, both involved in the AI chip industry, experienced contrasting fortunes. Broadcom’s shares fell over 6% in premarket trading on Thursday following reports that Alphabet (NASDAQ:) and its Google unit are considering other options for manufacturing specialty semiconductor chips used in AI applications. Reports suggest that Google is exploring the possibility of creating AI-enabling tensor processing units in-house, which would effectively remove Broadcom from this part of its operations.

The move follows unsuccessful negotiations between Google and Broadcom over the pricing of AI-related chips. Despite having substantial financial resources, Google is keen to be cost-efficient as it competes with Microsoft (NASDAQ:), which has made quicker strides in leveraging AI opportunities. It is estimated that even if Google decides to internalize chip production, it would take three to four years before its relationship with Broadcom would completely terminate.

On the flip side, Marvell Technology saw its shares rise by approximately 4% in premarket trading on Thursday. The company could potentially benefit from Broadcom’s loss, as reports suggest that Google may turn to Marvell for chips used in data centers. These servers require connectivity via Ethernet switches where specialty semiconductors come into play.

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