Broadcom's stock experienced a significant surge, climbing more than 10% following the announcement of a pivotal partnership with OpenAI. This collaboration is set to utilize 10 gigawatts of Broadcom's specialized application-specific integrated circuits (ASICs), designed to enhance the capabilities of OpenAI's advanced large language models. The agreement highlights Broadcom's increasing prominence within the artificial intelligence chip industry, an arena where OpenAI has also forged agreements with other leading semiconductor firms such as Nvidia and AMD. Despite its recent market performance, financial analysts suggest that Broadcom's valuation remains appealing.
On a recent Monday, Broadcom's shares saw an impressive increase, rising by as much as 10.6% and settling at a 10.2% gain by midday. This substantial boost was directly attributable to news of a new strategic alliance centered around Broadcom's custom AI chips. The collaboration, detailed in a joint press release, revealed that Broadcom and OpenAI are joining forces to deploy 10 gigawatts of Broadcom's ASICs. These ASICs, known as XPUs, are tailored for specific computational tasks, offering a more energy-efficient alternative to traditional graphics processing units (GPUs) for powering AI development. The announcement further specified that OpenAI would be responsible for designing the accelerators and associated systems, which Broadcom would then develop and implement. Plans also include the deployment of rack systems incorporating these custom AI chips.
This recent agreement with Broadcom is part of a broader trend of significant deals between OpenAI and prominent AI chip manufacturers. In late September, OpenAI disclosed a 10-gigawatt contract with Nvidia, accompanied by a substantial $100 billion investment in OpenAI. Just a few weeks later, the AI innovator announced a 6-gigawatt deal with Advanced Micro Devices (AMD), which included a provision allowing OpenAI to acquire up to 160 million shares of AMD, representing approximately a 10% stake in the company. By securing partnerships with several of the largest chipmakers, OpenAI ensures a consistent supply of cutting-edge AI chips essential for advancing its large language models. The addition of a 'fourth large hyperscale customer,' which many analysts speculated to be OpenAI, was also highlighted in Broadcom's fiscal 2025 third-quarter financial report, further solidifying its market position.
This deal not only emphasizes Broadcom's expanding influence in the AI chip sector but also underscores its potential for future growth. According to Melius Research analyst Ben Reitzes, Broadcom is projected to eventually capture around 30% of the entire AI chip market. Despite the stock's recent upward trajectory, Broadcom is still considered attractively valued, evidenced by its price/earnings-to-growth (PEG) ratio of 0.38, a figure well below the benchmark of 1 typically associated with undervalued stocks. This favorable valuation, combined with its strategic partnerships and market expansion, positions Broadcom as a key player in the evolving landscape of artificial intelligence technology.
The semiconductor giant's collaboration with OpenAI marks a significant milestone, solidifying its role in the rapidly expanding artificial intelligence domain. The deployment of its specialized ASICs is poised to enhance the efficiency and capabilities of advanced AI models. This strategic move, alongside other key partnerships, positions Broadcom favorably for continued growth and market leadership.
