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Broadcom Soars on $10B AI Chip Deal, Likely With OpenAI

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Broadcom shares surged 15% Friday after unveiling a $10 billion AI chip order from a new, unnamed customer—an announcement that cements its role as a key custom chip supplier in the race to expand generative AI infrastructure. The blockbuster order immediately sparked speculation that the buyer is OpenAI, with analysts at J.P. Morgan, Bernstein, and Morgan Stanley pointing to the timing and scale of the deal.

If confirmed, the partnership would mark OpenAI’s biggest move yet toward developing its own in-house processors, reducing reliance on Nvidia and AMD, whose stock prices dipped 2% and 5% respectively after Broadcom’s news. Reuters previously reported that OpenAI had been working with Broadcom on a custom chip project.

The deal highlights Big Tech’s broader trend of diversifying away from Nvidia’s costly, supply-constrained GPUs. Microsoft, Amazon, Google, and Meta are already designing their own silicon. Broadcom, which already supplies custom AI chips to Google and Meta, now appears positioned to capture even more of the rapidly expanding market.

The rally added more than $200 billion to Broadcom’s valuation, boosting its market cap above $1.44 trillion. Analysts now forecast Broadcom’s AI revenue could surpass $40 billion in fiscal 2026, far above last quarter’s $30 billion projection.

Adding to investor optimism, longtime CEO Hock Tan confirmed he would remain in charge for at least another five years. Under his leadership, Broadcom has transformed into a central player in the global AI supply chain.

Broadcom Shares Surge on Strong AI Chip Demand and Positive Forecast

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Broadcom’s shares surged in after-hours trading on Thursday, jumping 14% following a solid second-quarter forecast that alleviated investor concerns over AI chip demand. The surge came after the company reported better-than-expected revenue and a strong outlook, especially in its AI semiconductor segment. The upbeat forecast contrasts with Marvell Technology’s disappointing outlook earlier in the week, which had spooked the market.

Broadcom expects revenue of approximately $14.90 billion for the second quarter, surpassing analyst estimates of $14.76 billion, according to data compiled by LSEG. CEO Hock Tan reassured investors that demand for its custom AI chips is robust, particularly from cloud computing companies seeking alternatives to Nvidia’s expensive processors. Broadcom anticipates second-quarter revenue from its AI semiconductors to reach $4.4 billion, driven by significant investments from hyperscale customers for data center expansion.

Broadcom is increasingly benefiting from the trend of large tech companies moving away from off-the-shelf chips toward custom-made processors to meet the growing complexity of AI tasks. CEO Tan revealed that the company now has four additional hyperscale customers working closely with it to develop custom chips, joining the three existing customers using its AI processors. This growing customer base has contributed to Broadcom’s estimated revenue potential of $60 billion to $90 billion by 2027.

Notably, Broadcom is working with OpenAI to finalize the first custom chip design to reduce its reliance on Nvidia. Analysts like Anshel Sag from Moor Insights & Strategy have noted that Broadcom is positioning itself as a key player for hyperscalers and other companies wanting to control their AI designs and costs by developing their own custom AI accelerators.

In terms of manufacturing, Broadcom is exploring Intel’s most advanced process, 18A, through test wafers. Summit Insights analyst Kinngai Chan highlighted that Broadcom is better positioned than many of its peers due to its diversified exposure to the AI market, with multiple AI-specific customers for its chips.

In its first-quarter earnings report, Broadcom posted revenue of $14.92 billion, surpassing analysts’ expectations of $14.61 billion. The company’s AI revenue saw a remarkable 77% increase, reaching $4.1 billion, driven by the growing adoption of its custom accelerators. Broadcom’s infrastructure software segment also experienced strong growth, with revenue rising by over 47% to $6.70 billion, beating the $6.49 billion anticipated by analysts.