oscargarcia updated the narrative for AVGO

Broadcom and OpenAI Strike Major Chip-Development Partnership

What’s the Deal, Anyway?

• Broadcom and OpenAI are collaborating to co-design and deploy custom AI accelerator chips (often referred to as “XPU” or inference/AI accelerators), aimed at reducing OpenAI’s dependence on off-the-shelf GPUs (especially from Nvidia). 

• The scale is ambitious: OpenAI intends to deploy ~10 gigawatts (GW) of these accelerators by the end of 2029, with ramping beginning in H2 2026. 

• The financial terms have not been publicly disclosed (i.e. we don’t know margins, pricing, or cost sharing). 

• In parallel, OpenAI is making large compute deals with Nvidia (10 GW) and AMD (6 GW) — so Broadcom is one of multiple hardware relationships. 

• Analysts are linking this to a previously disclosed “> $10 billion AI infrastructure order” by Broadcom (for AI server racks/accelerators) of which OpenAI may be the counterparty. 

• Broadcom, in its Q3 results, guided Q4 revenue to ~$17.4 billion and expects AI semiconductor revenue to accelerate (Q3 AI revenue ~$5.2B; Q4 guide ~$6.2B) — signalling rising dependency on AI business. 

So, the deal is real (or nearly real) and sizable, but many financial details are opaque.

How It Affects Broadcom’s Valuation — Upside, Risks & Multiples

Let’s think through value drivers and potential pitfalls. (Yes, I’ll bring some math in.)

Upside / Positive Effects

1. Revenue Growth & AI Premium Arc

• If Broadcom can capture a meaningful slice of that 10 GW deployment, it could generate tens of billions of new AI-related revenue annually. Some analysts are already modelling $40 billion+ of AI upside beginning FY 2026. 

• This would tilt the company more toward high-growth semiconductor/AI multiples rather than “boring infrastructure + networking + legacy chip” multiples.

2. Higher Margins / Better Product Mix

• Custom ASICs or accelerators often carry higher margins than commodity chips. If Broadcom can command a premium, margin expansion is possible.

• Over time, the mix shifts toward more AI/accelerator revenue, which is more “scalable” with less dependency on general-purpose chips.

3. Strategic Positioning / Competitive Moat

• Being the hardware co-designer to one of the biggest AI players gives Broadcom more strategic leverage and credibility in the hyperscale/AI ecosystem.

• It opens doors to more deals with other AI players who want custom silicon — network effects of being a trusted AI chip partner.

4. Re-rating / Multiple Expansion

• The market may re-rate Broadcom upward because it’s no longer a mid-tier chipmaker but a core player in the AI supply chain. Investors tend to overpay for “AI stories” (until they regret it).

• Analysts are already raising price targets. 

5. Stock Market Reaction

• The stock jumped ~8–10 % on the announcement. 

• That suggests market participants are pricing in at least some positive forward expectations.

My Verdict: “Material Upside if It Works — But Don’t Underestimate the Risk”

• The Broadcom–OpenAI deal is a game-changer in narrative. It elevates Broadcom from an “also-ran chipmaker” to a central AI infrastructure player.

• If execution succeeds, this deal could shift Broadcom’s valuation paradigm, over time, the “AI premium” could dwarf its legacy business.

• But, as always, the devil is in the details (margins, execution, timing). The big risk is that expectations outrun reality, and when that happens, the premium could get clawed back.