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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 Projects Strong AI Growth for Fiscal 2026 With $10B Customer Win

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Broadcom (AVGO.O) forecast a sharp improvement in artificial intelligence revenue for fiscal 2026 after securing more than $10 billion in AI infrastructure orders from a newly signed customer, CEO Hock Tan announced Thursday. The news boosted shares by 4% in after-hours trading, as investors cheered both the order and Tan’s commitment to remain at the helm for at least another five years.

Earlier this year, Tan hinted at four potential new partners exploring custom chip development with Broadcom. One has now placed a firm order, officially joining its roster of clients. While Broadcom did not disclose the name, analysts see the deal as another sign of cloud giants seeking alternatives to Nvidia’s dominant but costly GPUs.

Broadcom has positioned itself as a key enabler of generative AI, designing custom silicon to help hyperscalers overcome performance bottlenecks. “Custom offerings for cloud giants are well-positioned as Big Tech races to push model training and inference forward,” said Emarketer analyst Jacob Bourne, noting that while Nvidia remains the default choice, bespoke chips offer niche performance advantages.

The company’s AI revenue grew 63% to $5.2 billion in the third quarter ended August 3 and is projected to rise to $6.2 billion in Q4. Broadcom has also expanded its portfolio with new networking products, including the Tomahawk Ultra and next-generation Jericho chips, both aimed at accelerating AI computing workloads.

Despite booming AI demand, Tan acknowledged softness in the company’s non-AI semiconductor units, particularly in enterprise networking and service storage. Even so, Broadcom guided for fourth-quarter revenue of about $17.4 billion, above Wall Street’s estimate of $17.01 billion.

Broadcom shares have gained nearly 82% since April, extending a threefold surge over the past two years, while Nvidia stock is up 27% in 2025.

Applied Materials Shares Drop on Weak China Demand and Tariff Uncertainty

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Applied Materials (AMAT.O) shares fell roughly 12% in Friday morning trading after the chip-equipment maker issued a disappointing revenue and profit forecast, raising investor concerns about the impact of U.S.-China trade tensions on demand. The decline follows warnings from Dutch rival ASML (ASML.AS), highlighting continued uncertainty over the effects of U.S. tariffs on the semiconductor industry.

CEO Gary Dickerson cited “wide-ranging implications for the semiconductor industry” during a post-earnings call, pointing to lower visibility and heightened uncertainty in the near term due to dynamic policy developments. China, which represented 35% of Applied Materials’ July-quarter sales, has become a key risk as U.S. export restrictions weigh on new equipment orders.

Smaller peer KLA Corp (KLAC.O), which also has a strong presence in China, expects softer demand amid ongoing Sino-U.S. trade tensions, while Deutsche Bank strategists warned that volatility in China is clouding visibility into earnings potential both geopolitically and cyclically.

Applied Materials forecast fourth-quarter revenue of $6.70 billion, plus or minus $500 million, below analysts’ consensus of $7.33 billion. Its projected profit also fell short of expectations. If losses persist, the company could shed over $18 billion from its $151.06 billion market value as of Thursday’s close.

J.P. Morgan analyst Harlan Sur suggested that the slowdown in China reflects timing of spending rather than structural weaknesses. Applied’s stock has risen 1.2% year-to-date, trailing the Nasdaq (.IXIC) up 12.3% and the S&P 500 (.SPX) up 10%.

Shares of other chip-equipment makers, including KLA Corp and Lam Research (LRCX.O), also fell following Applied’s results, down 5.5% and 4.3%, respectively. Applied reported third-quarter revenue of $7.30 billion, up 8% year-on-year and above the $7.22 billion consensus. Its stock trades at a forward price-to-earnings ratio of 19, lower than ASML’s 26.04, Lam’s 23.56, and KLA’s 26.82.