Broadcom to Retain 80% of Google TPU Business Despite MediaTek Threat, Morgan Stanley Says

Morgan Stanley has reaffirmed its Overweight rating on Broadcom (AVGO), arguing that investor concerns about competition from MediaTek for Google's custom chip business are overstated. The investment bank views the chipmaker as a "core AI winner" and a close second to market leader NVIDIA.

Analyst Reaffirms Bullish Stance

In a note to investors, analyst Joseph Moore addressed the "real overhang" of MediaTek potentially eroding Broadcom's significant share of Google's Tensor Processing Unit (TPU) business. The firm pushed back on bearish scenarios, stating it expects Broadcom to retain approximately 80% of the TPU business over time.

Morgan Stanley characterized forecasts that Broadcom's share could fall to 50% or that it could face eventual full displacement by MediaTek as "premature." The bank's positive outlook is rooted in Broadcom's established position and execution capabilities.

Assessing the Competitive Threat

While acknowledging that "MediaTek participation is real," the bank does not view it as a disruptive threat to Broadcom's position. The note compared the current debate to a similar dynamic last year involving Marvell and Amazon's Trainium chip, where fears of displacement also proved to be exaggerated.

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Morgan Stanley highlighted several factors that could complicate a significant shift by Google to MediaTek, including:

• Cost Savings: Potential savings may be difficult for Google to realize, particularly around high-bandwidth memory (HBM), where Broadcom has already secured supply under existing contracts.
• Execution Risk: The note pointed to execution risks with MediaTek's packaging strategy, suggesting its EMIB technology remains unproven at the scale Google requires.

Long-Term AI Outlook

Looking ahead, Morgan Stanley projects Broadcom will generate roughly $120 billion in AI-related revenue in fiscal 2027. The firm estimates that TPU-related revenue will account for about $80 billion of that total.

Analysts expect the TPU business's share of Broadcom's total AI revenue to fall to around 60% as newer custom chip (ASIC) customers increase their orders. The note concluded by calling AVGO "one of our preferred AI compute names and a close #2 behind NVIDIA," viewing the stock as "one of the best growth stories in semis."