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The explosion of AI-powered data centers and technologies has provided Broadcom (AVGO) with a potent growth catalyst, as illustrated by its beat-and-raise Q2 earnings report on June 12, and that momentum is showing no signs of slowing. According to Reuters, the semiconductor and infrastructure software company is developing new advanced AI chips for China's ByteDance, the parent company of TikTok, as the social media company looks to bolster its supply of chips to support its AI expansion aspirations.

• Previously, ByteDance had sourced most of its chips from NVIDIA (NVDA), but due to the U.S. government's recently placed restrictions on sales of advanced NVDA chips into the Chinese market, ByteDance had to find another supplier.
• Given that ByteDance is already a significant customer of AVGO's, mainly purchasing networking and server components from the company, AVGO is a natural fit to fill that void. Furthermore, the new 5 nm chip being designed by AVGO, and potentially manufactured by Taiwan Semi Manufacturing (TSM), would not be subject to current U.S. restrictions and sanctions.
• At this point, it doesn't appear that a deal has been officially hammered out and that actual manufacturing of the chip hasn't commenced yet. In fact, that might not happen until next year, although AVGO could begin securing orders (bookings) well ahead of the manufacturing timeline.

A new win with ByteDance would add even more fuel to the fire for an AI business that's already red-hot for AVGO.

• In Q2, AVGO's networking end market generated robust revenue growth of 44%, driven by increasing investments from hyperscaler customers as they stockpile AI accelerators. The rapid growth is also evidenced by the fact that AI products accounted for approximately 25% of AVGO's total sales, up from 19% in Q1. All told, revenue from AI products reached a record of $3.1 bln during the quarter.
• This surge in AI demand, coupled with strength in AVGO's Infrastructure Software segment, which continues to benefit from last year's acquisition of VMware, is offsetting weakness in other areas of the business -- namely, in wireless, server storage connectivity, and broadband. In other words, the company's revenue diversification strategy is paying dividends as it becomes less reliant on the very seasonal and highly competitive handset market. 

The main takeaway is that this potential design win with ByteDance could translate into the next meaningful growth catalyst for AVGO's burgeoning AI business.