Shares of Broadcom (AVGO) dropped significantly after reports emerged that the company is testing Intel’s 18A chip manufacturing process, stirring investor concern. Broadcom typically relies on Taiwan Semiconductor Manufacturing (TSMC) for production. Despite the common practice of testing manufacturers, investors are wary due to Intel’s history of production delays, with its 18A process now pushed back to 2026. The uncertain partnership and the possibility of production slowdowns or delays in Broadcom’s chip releases have contributed to the stock’s decline. No official contracts have been established, leading analysts to advise a cautious approach regarding investment decisions.
Shares of the semiconductor firm Broadcom (AVGO -6.33%) experienced a significant decline today following reports that the company is exploring Intel‘s chip manufacturing process. While Broadcom designs its chips, it does not produce them; the majority of its processors are currently fabricated by Taiwan Semiconductor Manufacturing (TSMC).
Investors in Broadcom appear to be wary of the possibility of the company opting for Intel as its manufacturer, causing the stock to drop by as much as 4.2% today. As of 11:25 a.m. ET, Broadcom’s shares had decreased by 2.2%.
Examining a potential manufacturer
It is not unusual for chip designers to conduct tests with manufacturers to evaluate the potential advantages of their processes. However, Broadcom’s trial of Intel’s 18A process has garnered investor attention, likely due to Intel’s ongoing difficulties in ramping up its advanced processing capabilities.
Intel has postponed its potential manufacturing agreements for its 18A process until 2026, with recent insights from Reuters indicating that this timeline has been extended by an additional six months.
The 18A process is designed for producing advanced artificial intelligence (AI) chips, which is a key area for Taiwan Semiconductor’s operations. Broadcom investors may be concerned that transitioning some of its chip production to Intel could hinder production rates or postpone the launch of new processors.
No decisions finalized yet
Neither Broadcom nor Intel has commented on any partnership or forthcoming agreements, and no formal contracts have been disclosed. This uncertainty suggests that Broadcom investors should adopt a wait-and-see strategy regarding this news and refrain from making investment choices based solely on initial testing.
Even if Broadcom were to consider shifting some of its chip production to Intel, such a move would likely not occur abruptly, particularly while Intel is still working to stabilize its production amid existing slowdowns. It’s probable that Broadcom is assessing its manufacturing options and evaluating the progress of Intel’s 18A process.
Chris Neiger holds no positions in any of the stocks mentioned. The Motley Fool has investments in and endorses Intel and Taiwan Semiconductor Manufacturing. The Motley Fool also recommends Broadcom and suggests the following options: short February 2025 $27 calls on Intel. For more details, visit the Motley Fool’s disclosure policy.