Broadcom's 7% Drop Is a Liquidity Rotation, Not a Trend Change

Broadcom lost $35 billion in market value on Monday. A report from The Information said Apple is designing its own server chip, code-named Baltra, for internal AI processing. The stock fell 7%.

The report cites people familiar with Apple's internal project. Apple already designs its own A-series and M-series chips for devices. A server chip would extend that strategy into the data center, potentially reducing reliance on Broadcom's custom ASIC work for Apple's AI infrastructure. The Information said production is not expected until 2027 at the earliest.

Broadcom's custom-chip unit, which includes work for Apple and Alphabet, accounted for roughly 35% of its semiconductor revenue in fiscal 2024, according to Morgan Stanley analysts. The Apple portion is the larger share. A full Apple exit would be material.

The timeline matters. Broadcom's Apple revenue is locked in through existing contracts for the current generation of AI chips. Management guided for $60 billion in fiscal 2025 revenue, up 15% from 2024, driven by AI networking and custom chips. A 2027 product shift does not change the 2025 or 2026 numbers.

The 7% drop erased roughly two weeks of gains. The stock had rallied 12% in the prior 10 sessions on AI optimism. Monday's move looks like a rotation out of a high-beta name into defensives, not a repricing of the Apple relationship. Trading volume was 2.3x the 30-day average, consistent with algorithmic and institutional rebalancing rather than a fundamental reassessment.

Broadcom's AI networking business, which sells switches and routers for data center clusters, is the bigger revenue driver today. That business is tied to the buildout of AI infrastructure by hyperscalers including Meta and Microsoft, not to Apple's chip strategy. The networking segment grew 45% year-over-year in the most recent quarter.

Apple has a history of bringing chip design in-house, as it did with the transition from Intel processors in Macs. A server chip follows the same playbook. The transition takes years. Broadcom has time to adjust its product mix toward networking and other custom-chip clients.

The selloff is a liquidity event in a stock that had run hard. The thesis does not depend on Apple's chip strategy in 2025 or 2026. The next catalyst is the fiscal first-quarter earnings report, expected in March, where management will update guidance on AI revenue.

"The Apple chip story is a 2028 issue, not a 2025 issue," one hedge fund manager who owns Broadcom said. "The market is selling first and asking questions later."

This isn't a structural break. It's a rotation into defensives after a 12% run. The AI infrastructure buildout that drives Broadcom's core growth – networking and custom chips for hyperscalers – remains intact through 2026.