Broadcom stock jumped on Monday after the fabless chipmaker announced a deal to supply AI processors for artificial intelligence leader OpenAI. Broadcom's deal follows similar OpenAI arrangements with chip rivals AMD and Nvidia.
Under their "strategic collaboration," OpenAI plans to deploy 10 gigawatts of AI accelerators designed with Broadcom. A gigawatt is a measure of power that is increasingly being used to describe the biggest clusters of AI processors. The multiyear partnership also includes Broadcom's networking technology.
The first wave of Broadcom systems will be deployed in the second half of 2026, the companies said. The deployments are expected to be complete by the end of 2029.
"Partnering with Broadcom is a critical step in building the infrastructure needed to unlock AI's potential and deliver real benefits for people and businesses," Sam Altman, cofounder and CEO of OpenAI, said in a news release. "Developing our own accelerators adds to the broader ecosystem of partners all building the capacity required to push the frontier of AI to provide benefits to all humanity."
On the stock market today, Broadcom stock advanced 9.9% to close at 356.70.
Shares of chip foundry Taiwan Semiconductor Manufacturing, better known as TSMC, rose 7.9% to end the regular session at 302.89. TSMC produces chips designed by Broadcom, AMD, Nvidia and others.
Last week, OpenAI signed a deal with AMD for 6 gigawatts of AI processing power. And on Sept. 22, OpenAI signed a deal with Nvidia for 10 gigawatts of AI processors.
OpenAI also has announced supply agreements recently with memory-chip makers Samsung and SK Hynix.
OpenAI Called 'Center Of AI Universe'
OpenAI's enormous capital spending plans present risks and rewards for computer hardware firms, Mizuho Securities analyst Vijay Rakesh said in a report Sunday. But, for now, the positives outweigh the potential negatives, he said.
Rakesh reiterated his outperform ratings on three AI stocks with exposure to OpenAI: AMD, Broadcom and Nvidia. He kept his price target of 410 on Broadcom but raised his targets for AMD and Nvidia.
Rakesh lifted his target on AMD stock to 275 from 205 and upped his target on Nvidia stock to 225 from 205.
Rakesh called OpenAI "the center of the AI universe" with its heady capital expenditure plans.
"We think the current wave of AI capex and AI funding headlines is largely driven by OpenAI, which is also driving investor circularity concerns especially with overlapping neocloud and in-house partnerships," Rakesh said.
OpenAI is on track to spend $700 billion on AI computing infrastructure by 2030, Rakesh said.
Broadcom Stock On IBD Tech Leaders List
CFRA Research analyst Angelo Zino remains positive on Broadcom stock. He rates it as buy with a price target of 380.
"We continue to believe that (Broadcom's) visibility/pipeline is extraordinary and the company is well positioned to benefit from the massive AI infrastructure build from existing/new clients, with upside from additional prospects to place large-scale orders in the coming years," he said in a client note Monday.
CNBC reported Monday that OpenAI is not the mystery $10 billion customer that Broadcom announced during its earnings call in September. Analysts had widely considered OpenAI to be that customer.
On the call, Broadcom Chief Executive Hock Tan said a fourth large customer had put in orders for $10 billion in custom AI chips. Analysts say the three other customers are Alphabet unit Google, Facebook parent Meta Platforms and TikTok parent ByteDance.
In a client note Monday, Melius Research analyst Ben Reitzes speculated that the fourth customer is a large-language-model AI company such as Anthropic.
Broadcom stock is on the IBD Tech Leaders list along with AMD, Nvidia and TSMC. Broadcom also is on IBD's Leaderboard.
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