Why Broadcom Stock Is Falling Today

Shares of semiconductor company Broadcom (NASDAQ: AVGO) were experiencing a decline today after news broke that the company is testing Intel's chip manufacturing process. Unlike many of its competitors, Broadcom designs its chips but outsources their production, primarily to Taiwan Semiconductor Manufacturing (TSMC).

The market reacted negatively to the announcement of the potential collaboration with Intel, leading to a drop of up to 4.2% in Broadcom's stock today, which then settled at a 2.2% decrease as of 11:25 a.m. ET.

Testing a Different Manufacturing Process

It is common practice for chip design companies to experiment with various manufacturing processes to discover advancements that could enhance their products. Broadcom's decision to test Intel's 18A manufacturing process raised eyebrows among investors, likely due to Intel's history of challenges in ramping up its advanced process technology.

Intel has faced multiple delays regarding its 18A process, now pushing the expected start of production contracts back to 2026. There are indications that this timeline might be extended by an additional six months, which adds to investor concerns.

The 18A process is designed for manufacturing cutting-edge artificial intelligence (AI) chips, a sector where TSMC has significantly outperformed. As a result, Broadcom's shareholders may be worried that a transition to Intel's manufacturing could lead to slower production times or delayed product launches.

No Formal Agreements Yet

As of now, neither Broadcom nor Intel has announced any formal contracts or detailed partnerships, suggesting that this situation is still in the experimental phase. Investors may want to exercise caution and adopt a wait-and-see approach rather than making hasty investment choices based on preliminary testing.

Even if Broadcom were to shift some of its chip manufacturing to Intel, such a significant transition is unlikely while Intel continues to grapple with its own production hurdles. It is more probable that Broadcom is assessing its manufacturing options and the progress of Intel's 18A process development.

Chris Neiger holds no shares in the companies mentioned. The Motley Fool has positions in and recommends Intel and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and has disclosed the following options: short February 2025 $27 calls on Intel. See their disclosure policy for more information.

Broadcom, Intel, stocks