Broadcom Helped Power Google’s TPU. Is It Time to Buy the Enabler?

Broadcom Helped Build Google’s AI Brain

Broadcom (NASDAQ: AVGO) has delivered a 46% gain for investors over the past year, yet it remains underappreciated by many, not from a valuation point of view, but more so from the value creation it provides in the semiconductor market, largely because of its sheer scale and the complexity of its business model.

Unlike more visible AI leaders such as Nvidia, Google, or Amazon, Broadcom operates deeper in the infrastructure layer, which makes its role easier to overlook. In our view, that is precisely where its long term strength lies. Broadcom is emerging as a quiet but critical enabler of AI, particularly through its custom silicon and IP partnerships.

A clear example is Google’s TPU program, which has been a major driver of Alphabet’s recent share price performance. What often goes unnoticed is that Broadcom played a meaningful role in the development and execution of that TPU architecture. Over time, we believe this behind the scenes positioning gives Broadcom a durable and differentiated path to winning in a smaller AI niche, even if it does not always command the same headlines as its peers.

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Nvidia Builds for Everyone. Broadcom Builds for the Best.

To understand Broadcom’s business model, it helps to first contrast it with companies like Nvidia. Nvidia is a chip designer focused on GPUs, which excel at handling many small, parallel computing tasks and are well suited to AI training and a wide range of workloads. A key advantage is Nvidia’s CUDA software ecosystem, which allows developers to adapt GPUs across multiple use cases, driving flexibility and broad adoption. Broadcom, by contrast, has carved out a niche in application specific integrated circuits, or ASICs. These are chips designed for highly targeted workloads, optimised for the specific needs of a customer or application. While ASICs sacrifice some flexibility, they offer efficiency, performance, and cost advantages when workloads are well defined, which is where Broadcom has built its edge.

How Broadcom’s Silicon Is Boosting Google’s Margins

From a commercial perspective, Broadcom’s ASICs become powerful when they are tightly integrated into revenue-generating workloads. Google’s Tensor Processing Units are a clear example. Built on Broadcom’s ASIC foundations, TPUs are designed specifically for Google’s core businesses such as Search and YouTube advertising, where workloads are highly predictable and scale is enormous. By vertically integrating these custom chips into its infrastructure, Google has been able to improve performance and energy efficiency with each new generation, lowering unit compute costs.

But it is not just about computational efficiency. As AI models and inference improve, Google has been able to monetise its products more effectively, which has translated directly into margin optimisation over the past three quarters. This highlights how well executed custom silicon can drive genuine shareholder value, extending beyond technical performance alone.

Broadcom is similar to Nvidia in that it is fundamentally a chip designer, but it operates in a narrower and more specialised niche that is now scaling rapidly, particularly following the commercial success of Google’s Tensor Processing Units. This momentum has helped bring greater market attention to custom ASICs, a segment where Broadcom is estimated to hold around 70% to 75% market share.

The Financial Snapshot

The financial execution supports this positioning. In FY21, Broadcom generated approximately US$27B in revenue, which grew to around US$64B by FY25, alongside gross margins of roughly 78.6%. Over the past four years, the company has generated US$27B in free cash flow, reflecting a business that is increasingly effective at converting revenue into cash while continuing to reinvest in long term growth. In our view, this combination of market dominance, operating leverage, and cash generation underpins Broadcom’s strength as a long term AI infrastructure winner rather than a cyclical trade.

What investors should know about AVGO

The main issue we see at current levels is valuation. While Broadcom remains a high-quality business and can still be argued as a long-term value compounder, the stock is clearly trading at a premium today. With the EBITDA multiple around 48x and the PE multiple near 71x, expectations are elevated. In shorthand, much of the future upside is already priced in. As a result, this is one to keep on a close watchlist rather than chase aggressively, particularly for investors who are sensitive to valuation risk.