By Dan Gallagher

Broadcom knows how to buy chip companies. Buying Intel would show just how far that superpower reaches.

Broadcom, the newest member of the $1 trillion club is apparently kicking the tires of the once-mighty chip titan now valued at about a 10th of that amount. The Wall Street Journal reported over the weekend that Broadcom is "closely examining" Intel's product business with an eye toward possibly making a bid. Such a move would rest on Broadcom's ability to find a partner willing to take over Intel's manufacturing arm, which is burning cash and lost more than $13 billion last year.

That alone makes any such deal far from a sure thing. Another huge wrinkle is that the deal would likely need approval from China -- which is hardly motivated these days to help out American chip companies. But Intel's rather desperate situation and downtrodden market value make any whisper of a deal an attractive scenario for its shareholders. Intel's stock jumped more than 9% Tuesday morning. That followed a 24% surge last week that was driven mostly by rumors that U.S. government officials were trying to broker a potential deal to get Taiwan Semiconductor Manufacturing involved in Intel's chip-fabrication facilities.

Broadcom's shares slipped nearly 3% on Tuesday though. The company has earned high marks on Wall Street for its record of smartly managing a string of major chip and software acquisitions. And its fast-growing artificial intelligence business -- making custom AI processors for companies such as Google and Meta Platforms -- has more than doubled the company's market capitalization in just over a year's time.

That has resulted in an unusually high bar. Broadcom's stock has been trading at more than 30 times projected earnings over the past couple of months for the first time in its history, according to FactSet. The stock has even been commanding a premium to Nvidia's multiple, thanks in part to the latter's sharp selloff last month following the market's DeepSeek panic. Raymond James analyst Srini Pajjuri estimates that AI accounts for about 26% of Broadcom's total sales now. "An acquisition of Intel's size would bring down AI exposure to [less than] 20% of sales, which could impact the multiple, in our view," Pajjuri wrote in a report Tuesday.

Still, Broadcom might have the best chance to turn around Intel's product business. Chief Executive Officer Hock Tan has often described the company's M&A strategy as a hunt for product franchises where Broadcom can take the lead in a particular market category. The x86 chip architecture that Intel has long specialized in would appear to fit that bill, as it still commands the dominant share of central-processing chips, or CPUs, for personal computers and servers.

Stacy Rasgon of Bernstein said that even a nongrowing x86 franchise could be "complementary" to Broadcom's current portfolio of chip assets. "And Hock has shown the ability to take a hatchet to costs, ruthlessly, while still preserving innovation," he wrote in a note Tuesday morning.

Still, x86 chips have been losing share in both PCs and servers. There is also Broadcom's $58.2 billion in net debt still on the company's balance sheet from its past acquisitions, though Rasgon notes that the company's stock is a "much more valuable currency" now compared with prior deals. "If they can pull it off, a deal looks quite attractive to us," Rasgon said. Even Intel doesn't seem to be costing Broadcom the benefit of the doubt.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

February 18, 2025 12:28 ET (17:28 GMT)

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