In a bid to secure a stable supply of high-end chips amid U.S.-China tensions, TikTok-parent ByteDance is reportedly collaborating with U.S. chip designer Broadcom (NASDAQ:AVGO) to develop an advanced AI processor.

What Happened: The chip in question is a 5-nanometer custom product known as an application-specific integrated chip (ASIC). It would be compliant with U.S. export restrictions, with the manufacturing outsourced to Taiwan Semiconductor (NYSE:TSM), Reuters reported on Monday citing, two sources familiar with the matter.

Amid the export controls implemented by the U.S. in 2022, no public announcements have been made regarding chip development collaborations between Chinese and U.S. companies involving 5nm or more advanced technology.

This collaboration between ByteDance and Broadcom, an existing business partner, is expected to reduce procurement costs and ensure a stable supply of higher-end chips.

However, TSMC is not expected to commence manufacturing the new chip this year. While design work is reportedly well underway, the "tapeout," which marks the end of the design phase and the beginning of manufacturing, has not yet commenced.

Securing AI chips is essential for ByteDance to enhance its algorithms. Besides TikTok and its Chinese counterpart Douyin, ByteDance manages several popular apps, including a ChatGPT-like chatbot service called Doubao, which boasts 26 million users.

ByteDance, Broadcom, and TSMC did not immediately respond to Benzinga's request for comment.

Why It Matters: Securing AI chips is essential for ByteDance to enhance its algorithms. Besides TikTok and its Chinese counterpart Douyin, ByteDance manages several popular apps, including a ChatGPT-like chatbot service called Doubao, which boasts 26 million users. To bolster its AI efforts, ByteDance has stockpiled Nvidia chips, according to a person familiar with the matter.

The collaboration between ByteDance and Broadcom comes in the middle of escalating tensions between the U.S. and China, particularly in the tech and semiconductor sectors. The U.S. has imposed export controls on advanced semiconductors, aiming to restrict China's access to cutting-edge technology.

Despite these challenges, Chinese companies have been making significant strides in the semiconductor industry. For instance, China's leading chip manufacturer, SMIC, has been ramping up its chip production with domestic tools, potentially counteracting U.S. export restrictions.

Meanwhile, Broadcom has been making significant advancements in the AI and networking technology sector, outpacing competitors like Nvidia Corp. (NASDAQ:NVDA) and Marvell Technology Inc. (NASDAQ:MRVL) in certain sectors, according to JPMorgan.

Price Action: Broadcom Inc.'s stock closed at $1,658.63 on Friday, down 4.38% for the day. Year to date, Broadcom's stock has seen significant growth, rising by 52.82%, according to data from Benzinga Pro.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote