Morgan Stanley reaffirmed its 'Overweight' rating on Broadcom (AVGO.US) in a research report published on Tuesday, maintaining a $502 price target and clearly defining the company as a "core AI winner" second only to NVIDIA.
The firm believes market concerns that MediaTek will significantly erode Broadcom's share in Google's TPU business are severely overblown.
While the Philadelphia Semiconductor Index has surged nearly 90% year-to-date, Broadcom's stock price has remained virtually flat.
This stark disparity stems from a six-month market anxiety over whether MediaTek is taking custom chip orders for Google TPUs away from Broadcom.
In its latest report, Morgan Stanley provided a clear answer: Broadcom will remain Google's primary TPU supplier, maintaining approximately 80% market share long-term, with MediaTek's involvement being "real but not disruptive."
Root Cause of Underperformance: A Battle of Market Share Perceptions
Since 2026, Broadcom's stock has risen only about 0.1%, notably lagging the broader AI chip sector.
Morgan Stanley analyst Joseph Moore acknowledged this performance is "surprising," especially considering the company's continued strong growth momentum in AI.
Two primary factors are behind this weakness: first, investor preference for 'bottleneck' AI semiconductor stocks like NVIDIA; and second, the ongoing controversy surrounding MediaTek's potential share in Google's TPU market.
In March, a report suggested MediaTek was collaborating with Google on next-generation TPU chips.
In early June, Broadcom confirmed during its earnings call that Google is seeking to introduce other chip suppliers, meaning Broadcom would lose its exclusive supplier status for TPU-related design wins.
Subsequently, pessimistic expectations spread further, with some views suggesting Broadcom's TPU share could drop from about 95% in 2026 to 80% in 2027 and 65% in 2028.
This concern has directly suppressed Broadcom's valuation recovery.
As of the July 14th close, Broadcom traded at $389.11, a roughly 22% retreat from its historical closing high of $481.57 set on June 2nd.
Morgan Stanley's Core Thesis: The 80% Share is Secure
Addressing market fears, Morgan Stanley's Tuesday report deconstructed the bearish logic point by point, offering four key judgments.
First, MediaTek's involvement is real but not disruptive.
Moore clarified that MediaTek has indeed secured some 3-nanometer design work for Google's next-gen TPU, an opportunity with "some credibility," and Google has a motive to reduce reliance on a single supplier.
However, he emphasized this would not cause a drastic drop in Broadcom's share, stating "Broadcom should maintain roughly 80% TPU market share long-term," and calling bearish predictions of a drop to 50% or complete replacement "premature."
Second, Broadcom's scale platform advantage is difficult to replace quickly.
Broadcom possesses a mature, scaled ASIC design platform that is hard to supplant rapidly once established.
Particularly regarding HBM memory supply, Broadcom has secured supply under existing contracts, making MediaTek's potential cost savings difficult to realize.
Third, MediaTek faces packaging execution risks.
Morgan Stanley noted that MediaTek will still rely on TSMC's CoWoS capacity for 2-nanometer TPU production, and the EMIB packaging technology remains unproven at the large scale Google requires, introducing uncertainty for MediaTek's technical execution.
Fourth, historical precedent suggests such concerns are often overdone.
Morgan Stanley compared the current situation to last year's competition between Marvell and Alchip for Amazon's Trainium chips, where market fears of Broadcom being completely replaced proved exaggerated.
How Significant is the Real Threat? Diverging Views Among Analysts
Not all institutions share Morgan Stanley's optimistic view.
A report from GF Securities on July 1st noted that Google has chosen MediaTek over Broadcom or Qualcomm to build its ninth-generation TPU (codenamed "Triggerfish"), marking a significant shift in Google's custom chip strategy.
As MediaTek's 'Zebrafish' enters mass production by the end of 2026 and 'Humufish' ramps in 2028, MediaTek's position in Google's TPU supply chain is expected to solidify.
Counterpoint Research forecasts that MediaTek could contribute about 26% of AI ASIC server compute shipments by 2028, becoming the second-largest player after Broadcom.
However, these projections are not contradictory to Morgan Stanley's "80% share" thesis—MediaTek growing from zero to 15%-20% share mathematically aligns with Broadcom declining from 100% to 80%.
The key divergence lies in whether this represents an "orderly dilution" or a "cliff-like drop" in Broadcom's share, with Morgan Stanley firmly betting on the former.
Broadcom's Multiple Lines of Defense: Beyond Google TPU
Even if facing share dilution in the Google TPU business, Broadcom's AI narrative has multiple supporting pillars.
First, the scale of AI revenue is massive.
Morgan Stanley estimates Broadcom will generate approximately $120 billion in AI revenue in fiscal 2027, with about $80 billion related to TPUs.
Second, customer diversification is progressing.
Moore pointed out that Broadcom will have "multiple" new ASIC customers ramping up in the second half of 2027, meaning the TPU's contribution to Broadcom's total AI revenue is expected to decline from current levels to about 60%.
Third, major customer partnerships remain solid.
In April, Broadcom announced an expanded chip collaboration agreement with Google extending to 2031; Meta extended its custom chip partnership with Broadcom; last week, Apple announced a multi-year chip deal with Broadcom valued at over $30 billion.
Concurrent endorsements from these three tech giants serve as strong evidence for Broadcom's AI moat.
Market Reaction and Valuation Outlook
Morgan Stanley maintains its 'Overweight' rating and $502 price target for Broadcom.
Wall Street overall remains highly bullish—TipRanks data shows that among 26 analysts covering Broadcom, 23 assign a 'Buy' rating, 3 a 'Hold', with an average price target of $513.29, implying over 30% upside potential.
Analysis suggests whether Broadcom can sustain above $500 depends on the successful onboarding of new ASIC customers in the second half of the year.
If management begins disclosing details of new customers in the coming quarters, the $502 target becomes a base case; if new customer information remains vague while negative reports on Google TPU share persist, market concerns over Broadcom's over-concentrated AI revenue will deepen.
MediaTek's order competition is real, but Broadcom's core position is difficult to shake in the near term—this is Morgan Stanley's core conclusion.
However, the battle over TPU share is far from over.
Between an "orderly dilution" from 100% to 80% and a potential "cliff-like drop" to 50%, the market is currently choosing to believe the former.
The final answer, however, hinges on three variables: whether MediaTek can execute its 3-nanometer TPU mass production as scheduled, whether Broadcom can successfully onboard new ASIC customers by 2027 as planned, and how far Google will push its supplier diversification strategy.
Until these are clear, Broadcom's path to valuation recovery will continue alongside this ongoing "battle of market share perceptions."
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