Enjoying this bite?
Sign in (free) to track this channel, unlock new bites the moment they drop, and search every summary we've ever made.
Source: YouTube. Summary is AI-generated from the video's captions and may contain errors. It does not represent the views of TubeBite, the creator, or YouTube. Watch the original before relying on anything important.
SUMMARY
Parkev Tatevosian, CFA, analyzes the implications of a newly announced multiyear partnership between Broadcom and Apple to supply custom chips through 2031. The discussion covers supply chain dynamics, valuation updates, and revised investment ratings for both companies.
MAIN POINTS
- Broadcom and Apple announce an extended partnership for custom chips running through 2031.
- Apple has reduced reliance on Broadcom by developing its own Wi-Fi and Bluetooth chips but continues to outsource manufacturing.
- Apple faces increased supply chain risks as competitors like Nvidia become more important to suppliers such as TSMC.
- Apple is rated as a hold due to its high valuation, while Broadcom is considered undervalued and rated as a buy.
- Broadcom offers portfolio diversification from Nvidia as more tech companies invest in application-specific integrated circuits.
- Apple's supply chain challenges could lead to further product price increases if component deals are not secured.
DETAILED ANALYSIS
Broadcom and Apple have formalized a significant extension of their partnership, with Broadcom set to supply custom application-specific integrated circuits (ASICs) to Apple through 2031. This move aligns with a broader trend among large technology firms, including Alphabet and Meta, to commission chips tailored to their specific needs rather than relying solely on standard offerings from major suppliers like Nvidia, AMD, and Intel. Apple, while historically dependent on Broadcom for networking components such as Bluetooth, 5G, and Wi-Fi, has recently begun integrating more chip design in-house, particularly for Wi-Fi and Bluetooth in its devices.
However, manufacturing remains outsourced, primarily to Taiwan Semiconductor Manufacturing Company (TSMC), which introduces vulnerabilities as suppliers prioritize larger or faster-growing clients.
The competitive landscape has shifted as artificial intelligence and large language model providers, notably Nvidia, have increased their purchasing power with manufacturers like TSMC. This dynamic potentially weakens Apple’s negotiating position, making supply chain security a growing concern. Recent supply constraints forced Apple to raise prices on several products due to increased memory costs, highlighting the risks of not having robust supplier agreements in place.
Although iPhone prices have not yet been affected, further supply chain disruptions could impact unit sales.
From a valuation perspective, Apple is considered a high-quality business but is currently rated as a hold, with a fair value estimate of $205 per share compared to a market price above $300. A pullback of around 20% would be needed to upgrade its rating. In contrast, Broadcom is viewed as significantly undervalued, with a fair value estimate of $506 per share and a current price of $276.
The partnership with Apple strengthens Broadcom’s position and provides diversification benefits for investors, especially those also holding Nvidia, as increased adoption of ASICs could shift spending away from Nvidia. Overall, the partnership is deemed more beneficial for Broadcom but remains a positive development for both companies as they navigate an evolving technology supply chain landscape.
LINKS
- YouTube channel membership for exclusive perks and early access.
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on stock investing frameworks.
- Discounted access to Fiscal.ai for investment research.
- Webull sign-up link with bonus shares.
- Subscribe to Parkev Tatevosian's free monthly Substack newsletter.