Why Broadcom Stock Sagged Today

Prominent chip stock Broadcom (NASDAQ: AVGO) got chipped on Thursday, on news that a top client might be accelerating a move away from its hardware. Investors traded Broadcom's shares down by more than 1% on the news, a steeper fall than the 0.5% drop recorded by the bellwether S&P 500 index.

Chip switch

Early in the day, Bloomberg reported that Apple (NASDAQ: AAPL) intends next year to begin using one of its chips to power the Bluetooth and WiFi technology that connects iPhones and iPads, among other goods. This would supplant several parts currently provided by Broadcom.

Citing unnamed "people familiar with the matter," the financial news agency wrote that Apple's Proxima chip will begin to appear in the first products in 2025. Proxima is to be manufactured by the world's most prominent contract chip maker, Taiwan Semiconductor Manufacturing.

Any decline in Broadcom's involvement with Apple products is cause for at least some concern. At the moment, the tech giant is the source of approximately 20% of Broadcom's total revenue.

Neither that company nor Apple has yet made any official comments on the Bloomberg article.

Not so much ado about something

If accurate, the reported switch will be part of Apple's broader strategy to swap out parts made by other companies with its own, proprietary components. While this isn't a make-or-break emergency for Broadcom, which does a brisk business with other partners as well, it's sure to ding the fundamentals to some degree.

That said, the relatively light sell-off on the news indicates investor confidence that any potential damage will be limited, at least in the proximate future. Broadcom shareholders shouldn't press the panic button yet.

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Eric Volkman has positions in Apple. The Motley Fool has positions in and recommends Apple and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.