Broadcom is reportedly in talks to acquire some portion of beleaguered chip giant Intel in a move that could boost Broadcom’s expansive portfolio but would come at the expense of incurring a lot of expense.

The Wall Street Journal over the weekend reported that Broadcom and Taiwan Semiconductor Manufacturing Co. (TSMC) were looking at potential Intel acquisitions. Those deals would reportedly see Broadcom acquire Intel’s chip-design business and TSMC purchasing Intel’s production facilities.

Specifics have been sparse, but the basic outline has garnered considerable grumbling over integration logistics and geo-political wranglings. There has also been a decided lack of financial implications yet tied to the deal, which could end up being the least complicated aspect.

The reports sent Intel’s stock surging more than 35% at one point this week, which pushed its market capitalization to more than $115 billion. That was a significant boost for Intel, which has been reeling over the past several months following the abrupt resignation of former CEO Pat Gelsinger.

Intel’s stock has since cooled a bit, which could make it more appealing to potential acquirers, including Broadcom as it has spent the past year re-aligning its finances following its $69 billion purchase of VMware. The deal initially inflated Broadcom’s debt load by nearly $30 billion, but the vendor has made significant progress toward reducing that impact.

Broadcom CEO Hock Tan teased that progress during the vendor’s most recent earnings call, stating that Broadcom did not have enough cash on hand for a “big” acquisition but added that it was always open to opportunities.

Tan cautioned that Broadcom’s acquisition approach was in “buying big enough companies” that its current cash on hand was “not adequate” to move down that road. However, he did add that did not mean it was not possible.

“We are open. Still open, always open, because that’s been a core part of our strategy, business model of this company for the last 10 years, which is we're always interested in adding to our portfolio, very good franchise assets, be they in semiconductors or be they in infrastructure software, as long as they meet the criteria, the fairly demanding criteria we look for, we will always be open to acquiring assets and adding into a portfolio,” Tan said.

Dave Novosel, senior analyst at corporate bond analyst firm GimmeCredit, explained to SDxCentral in an interview that Broadcom has managed to cut its debt by nearly $9 billion over the past three quarters.

“They’re in debt reduction, so are giving themselves the capacity to make another large deal,” Novosel said. “Would they have the capacity? Yes. Would it cause a widening of spreads? Yes, I think it would. But nonetheless, I think they would be amenable to the deal.”

Novosel added that Broadcom could further reduce that debt by as much as $17 billion in fiscal 2025, which would put its leverage ratio around the 2x level it held prior to the VMware purchase.

Is Intel’s AI opportunity enough for Broadcom? Broadcom is already deeply embedded in the chip ecosystem and has touted its position within the growing artificial intelligence (AI) opportunity. That is also an opportunity Intel is targeting.

Broadcom’s overall AI-related revenues surged 220% year over year to $12.2 billion during its fourth fiscal quarter of 2024, which Tan tied to its custom AI accelerators and its networking business. These AI components accounted for 41% of Broadcom’s overall semiconductor revenue during that quarter and powered overall semiconductor revenue to a record $30.1 billion for the full fiscal year.

Tan stated that AI was set to become Broadcom’s dominant semiconductor driver over the next several years. This will be driven by Broadcom’s hyperscaler partners that are themselves driving significant investments into their AI-focused infrastructure and are relying heavily on Broadcom’s XPU architecture.

“We currently have three hyperscale customers who have developed their own multigenerational AI XPU roadmap to be deployed at varying rates over the next three years,” Tan said during Broadcom’s earnings call. “In 2027, we believe each of them plans to deploy one million XPU clusters across a single fabric.”

Tan added that this will feed into a total addressable market of up to $90 billion by 2027.

“The reality going forward for this company is that the AI semiconductor business will rapidly outgrow the non-AI semiconductor business,” Tan said.

Equity research firm William Blair noted in a report that Broadcom supplies custom chips to Google, Meta, and Bytedance, and also noted that Broadcom hinted at a pair of new hyperscale customers it was working through a validation process with that the analyst firm suspects are OpenAI and Apple.

“Altogether, Broadcom’s commentary on its AI opportunity with customers was a positive reinforcement for our AI thesis, highlighting that despite some ongoing investor concerns about scaling laws and pre-/post-training compute needs, the largest hyperscalers remain steadfast in their plans to continue scaling out their AI clusters over the next few years,” William Blair noted in its report.

Humongous hurdles While the financial angle of the reported deal appears workable, Novosel did note that the bigger challenge will be around logistics. Published reports have cited analysts questioning TSMC’s interest in Intel’s production facilities, Broadcom’s ability to squeeze its required return on controlling only part of Intel’s assets, and the bigger question of the U.S. government’s appetite for such a deal.

“They would need two deals to happen simultaneously, so that would be a major impediment,” Novosel said of the currently reported deal structure. “You also have the government’s angle with the CHIPS Act and Trump trying to support domestic production and how comfortable the government would be in having TSMC involved. So, yeah, there are some obstacles.”