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Amazon Reportedly Making Chips, Paring Need for Broadcom

Amazon is working on its own chips to power its networks, which could reduce its dependence on Broadcom, a media report says.
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Broadcom  (AVGO)  shares fell Tuesday after a media report said Amazon  (AMZN)  is working on its own chips to power its networks, which could reduce its dependence on the semiconductor titan.

The idea for Amazon is to improve server speed. The new chips would fuel Amazon’s hardware switches. The project comes from a team that Amazon inherited with its takeover of chipmaker Annapurna Labs in 2015, a knowledgeable source told The Information.

The publication called the relationship between the Seattle tech and online-retail company and the San Jose, Calif., chipmaker “frosty.”

Broadcom recently traded at $454.13, down 3.9%. It has gained 25% in the past six months amid a global chip shortage.

Amazon recently traded at $3,052.95, down 0.7%. It has slipped 3% in the past six months, as investors are no longer wowed by rising demand for its products amid the COVID pandemic.

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Analysts were mostly bullish on Broadcom after its latest earnings report this month.

Baird maintained an outperform rating while raising Broadcom's price target to $500 from $470. The investment firm said that strong growth in organic semiconductor and software revenue "should dismiss concerns about core growth, and demonstrates strong execution." founder Jim Cramer was bullish too.

"Bottom line, while some may nitpick the semiconductor sales or gross margin performance, this was an overall solid release," said Cramer and the Action Alerts PLUS team, which holds Broadcom in its portfolio.

"That said, even Broadcom is not immune to the supply side tightness seen throughout the industry. ... We believe management is doing a very good job of navigating the environment and communicating with both their suppliers and customers," the AAP team added.

Broadcom and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stocks? Learn more now.