Reports indicate that Microsoft is engaged in advanced negotiations with semiconductor design firm Broadcom. The discussions center on a collaborative effort to develop custom artificial intelligence (AI) chips, signaling a potential strategic shift in the tech giant’s infrastructure approach. This move is seen as a bid to manage the immense hardware demands of next-generation AI systems while reducing reliance on existing suppliers.
Addressing Capacity and Cost in the Cloud Era
The push for specialized hardware comes against a backdrop of sustained cloud demand. Microsoft’s Azure cloud segment reported currency-adjusted revenue growth exceeding 30% for the first quarter of its fiscal year 2026. However, this expansion is currently constrained by a lack of available capacity—a bottleneck the prospective Broadcom partnership aims to alleviate.
To fund its ambitious growth, Microsoft has significantly increased capital expenditures, which recently reached $34.9 billion. Despite these substantial outlays, institutional investor confidence appears steady. Norway’s sovereign wealth fund, for instance, maintains an approximate 1.35% stake in the company. Further underpinning optimism is a record remaining performance obligation (RPO) of $392 billion, which provides strong future revenue visibility.
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The Drive for Custom Silicon and Control
At the heart of the talks is the development of application-specific integrated circuits (ASICs). These chips would be tailored precisely for the computational needs of OpenAI’s planned computing cluster, internally referred to as the “Stargate” project phase. Market observers interpret the turn to Broadcom as a potential replacement or supplement to designs previously sourced from Marvell Technology.
The objective for Microsoft is gaining greater command over its hardware foundation. By developing proprietary solutions, the corporation could not only lessen its long-term dependence on supply chains like NVIDIA’s but also potentially reduce the overall cost of running its AI workloads. Shares responded positively to the rumors at the start of the trading week, advancing 1.31% to a price of €420.45.
Investor Focus Turns to Upcoming Earnings
Market participants are now looking ahead to Microsoft’s second-quarter results, due at the end of January. Key points of interest will include management commentary on supply constraints and any potential official confirmation of the Broadcom collaboration. Analysts anticipate that positive effects on margins from such an alliance could materialize starting in fiscal year 2027.
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