TLDR
- Broadcom and OpenAI signed a deal to codevelop up to 10 gigawatts of AI accelerators, sending AVGO stock up more than 7%
- The announcement came one week after OpenAI signed a similar deal with AMD for 6 gigawatts of AI processors
- Aletheia Capital initiated coverage on Broadcom with a Buy rating and $400 price target on the same day
- Analysts project Broadcom’s AI revenue will double in both fiscal 2026 and 2027, potentially reaching $80-85 billion
- OpenAI has signed multiple chip deals recently, including a $100 billion agreement with Nvidia
Broadcom stock jumped more than 7% in early trading Monday after OpenAI announced a partnership to develop custom AI chips. The deal will see the two companies codevelop up to 10 gigawatts of AI accelerators.
The timing is interesting. Just one week earlier, OpenAI announced a multiyear, multibillion-dollar deal with AMD for up to 6 gigawatts of AI processors.
Under the Broadcom agreement, OpenAI will design the accelerators and systems. Broadcom will then help develop and deploy them.
OpenAI CEO Sam Altman called the partnership a critical step in building AI infrastructure. He said developing their own accelerators adds to the broader ecosystem of partners building AI capacity.
The deal reflects a growing trend. Companies are increasingly developing custom silicon to reduce reliance on Nvidia and AMD chips.
Google and Amazon already have their own custom AI chips. Microsoft has them too.
But OpenAI isn’t abandoning traditional chip suppliers. The company recently signed a $100 billion deal with Nvidia for up to 10 gigawatts of Nvidia systems.
Analyst Coverage and Revenue Projections
The same day as the OpenAI announcement, Aletheia Capital initiated coverage on Broadcom with a Buy rating. The firm set a $400 price target.
Their analysis uses a 30x fiscal 2027 price-to-earnings ratio. They expect Broadcom’s AI revenue to double year-over-year in both fiscal 2026 and 2027.
That would effectively quadruple AI revenue over three years. Aletheia Capital projects the company’s AI revenue will reach $80-85 billion in fiscal 2027.
This would put Broadcom in the upper half of its own $60-90 billion serviceable market projection. The firm notes Broadcom only needs to confirm four out of seven customers to reach these projections.
Near-term growth may depend on CoWoS supply availability. But the long-term picture looks strong.
Cash Flow and Financial Outlook
Aletheia Capital forecasts Broadcom’s free cash flow will triple by fiscal 2027. They project $60-65 billion compared to under $20 billion last year.
This cash flow increase could lead to more share buybacks and dividends. Debt reduction is also on the table.
The company currently has a market value of $1.53 trillion. InvestingPro data gives it a “GREAT” financial health score.
Twenty-six analysts recently revised earnings estimates upward. That’s a good sign for investor confidence.
OpenAI has been on a dealmaking spree. The company has agreements with CoreWeave and launched its Project Stargate initiative with Oracle.
But questions remain about OpenAI’s spending. The company continues to invest billions while failing to turn a profit.
Some worry about a circular AI trade and a potential bubble. Amazon founder Jeff Bezos said at Italian Tech Week that we’re likely witnessing an AI bubble.
However, Bezos added that some investments will eventually pay off. When people get excited about new technology, every experiment gets funded.
Investors have a hard time distinguishing between good and bad ideas during the excitement. But that’s the nature of breakthrough technology cycles.
OpenAI is valued at around $500 billion. That makes it the world’s most valuable startup, surpassing Elon Musk’s SpaceX.
