Apple reveals new AI chip building partner, and it isn’t Amazon

11 Dec 2024, 18:11 by Samuel O’Brient · The Fresno Bee

Since the release of Apple AI, the tech sector leader has been in full focus. Apple’s (AAPL) integration of generative artificial intelligence (AI) into its technology has been well received by consumers, leading to its management winning praise from experts.

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As the company’s reach has expanded, questions have risen about who Apple will partner with for its chip building needs.

In recent years, Apple has purchased the chips necessary for powering its devices from different companies, such as Taiwan Semiconductor Manufacturing Company (TSMWF) , the prominent chip manufacturer for most of Silicon Valley, and Micron Technology (MU) .

Providing chips to a fast-growing industry leader is a lucrative market for these smaller companies, but it may be closing. Apple is focused on creating its own chips, and according to a recent report, it has chosen a partner for this venture who is likely to benefit significantly from this project.

Apple's plans for creating its own AI server chips in-house could usher in a new age of AI production.Justin Sullivan/Getty ImagesJustin Sullivan&sol;Getty Images

Apple has chosen a partner to help it create a critical AI chip

The booming AI chip market is changing quickly as companies provide updates on their progress and plans. Earlier this month, Apple revealed that it buys chips for its search functions from Amazon (AMZN) subsidiary Amazon Web Services (AWS). But to build out its new AI-driven server chip, Apple is turning to a new partner.

Wednesday, The Information reported that Apple had confirmed plans to partner with Broadcom on its newest chip venture. This isn’t the first time the two companies have worked together.

In 2023, Apple announced that it had reached a multibillion-dollar agreement with Broadcom (AVGO) for the latter to produce 5G radio frequency components over a multiyear period.

Now, it seems that they are embarking on a new initiative that could have much more significant implications for both stocks. According to The Information's sources, this new chip has been given the code name Baltra and is expected to be in mass production by 2026.

If it completes this project, Apple will have entered the server hardware production facet of the tech sector, putting it in an optimal position to continue expanding its share of the AI market.

It's no secret that most leading tech companies are racing to start building out their own AI chips.

Nvidia is currently the sector’s most dominant player due to the industry's reliance on its high-priced graphics processing units (GPUs). This means that the firms that can successfully produce less expensive chips capable of powering advanced AI models will have a significant growth-driving opportunity.

Successfully producing Baltra would be an important step for Apple, as it could help advance its AI platform. Phone Area reports that “a dedicated AI server chip would allow for specialized architectures optimized for complex tasks like large-scale machine learning, conversational AI, and real-time natural language processing.”

Apple has already achieved some success in producing its own in-house chips.

Since 2020, Apple's MacBook laptops have run on the Apple M1 chip rather than previous processors made by Intel. This decision significantly changed the semiconductor industry, revealing an early focus on in-house chip production. Since the start of the AI boom, this trend has only increased.

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Broadcom could be a winner among AI stocks

While Intel has struggled to keep pace with its more innovative big tech peers, Broadcom has benefited significantly from the AI rush that has overtaken markets in recent years.

Shares have surged 76% over the past year as the company’s niche as a custom AI chip provider has made it a favorite not just in Silicon Valley but on Wall Street as well. 13 out of 15 analysts currently rate AVGO stock as a Buy.

Broadcom shares rose today on news of its new partnership with Apple, and for good reason. The company is in an excellent position to help one of the tech sector’s leading companies achieve a goal that could further shape the future of AI production.

If Apple can produce its own chips to power AI models, it will be able to easily scale its new ventures and further revolutionize its already popular products.

Apple's achievement of this would be a blow to Nvidia, as it would likely usher in a new era in which reliance on Nvidia GPUs is significantly lower, thereby lowering its market share. However, Baltra’s production and execution will likely drive significant growth for both companies involved, pushing them to new heights at the expense of competitors.

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This story was originally published December 11, 2024, 10:11 AM.