Broadcom and Apple Stocks Drop on News of Wireless Chip Breakaway

Apple Stock

As experts and investors assessed the ramifications of the chipmaker following allegations that it may soon lose a significant portion of its business from Apple (NASDAQ:AAPL), Broadcom stock (NASDAQ:AVGO) plummeted by roughly 4% on Tuesday. Apple stock was also trading in red for the most part of Tuesday. 

According to a Monday Bloomberg article, Apple (AAPL) will start using a custom chipset in 2025 to replace the Broadcom (AVGO) Wi-Fi and Bluetooth chips it currently uses. Given that Apple (AAPL) accounts for around 20% of Broadcom’s sales, the change might be quite significant for the company.

According to two work agreements that were signed in 2019 and 2020 between Apple and Broadcom, Wells Fargo analyst Aaron Rakers, Broadcom has been giving Apple “a variety of specified high-performance wireless components and modules across several years.” Raker claimed that the two agreements were expected to bring Broadcom sales of around $15 billion.

Given how much Apple contributes to Broadcom’s revenue, Rakers stated that this “certainly generates an investor headwind.” Rakers presently rate Broadcom’s stock as equal weight, or neutral, with a $580 per share price target.

Analyst Vivek Arya of Bank of America Securities maintained his buy rating on Broadcom’s (NASDAQ:AVGO) stock and his $680 per share price objective. Even though Arya acknowledged that “any loss of business at a notable customer such as Apple is not positive,” she was still optimistic about Broadcom due to things like the projected date when Apple will move to its own Wi-Fi and Bluetooth chipset.

Developments Likely to Influence Apple Stock

Even with that loss, according to Arya, Broadcom (NASDAQ:AVGO) “would still be left with a large 12% to 15% Apple [business] exposure,” and the company has a history of selling off portions of its operations to lessen its reliance on Apple (NASDAQ:AAPL).

The Apple (NASDAQ:AAPL) revelation is a “moderately negative” for Broadcom investors, but Arya also pointed out that the company’s “profitability and growth are more dependent on distinctive data center [and] enterprise networking assets” and exposure to a robust market for cloud-based capital spending.”

At the end of December, Broadcom shares went down because regulators in the European Union started what was called an “in-depth” investigation of the company’s plan to buy VMware for $61 billion.

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Featured Image: Unsplash © Laurenz Heymann

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