How Broadcom’s (AVGO) $10 Billion OpenAI Chip Deal Could Reshape Its AI Leadership

• Earlier this month, OpenAI and Broadcom announced a landmark partnership to co-develop and supply approximately US$10 billion worth of custom AI chips for data centers, accompanied by Broadcom's rollout of advanced hardware such as the Thor Ultra 800G AI Ethernet NIC and Wi-Fi 8 silicon solutions.
• This collaboration positions Broadcom as a significant competitor in the customized AI infrastructure market, reflecting increasing reliance on its custom chip and networking expertise by leading generative AI companies seeking alternatives to established GPU providers.
• We'll look at how Broadcom's multi-billion-dollar OpenAI partnership and AI chip launches reshape the company's long-term investment outlook.

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Broadcom Investment Narrative Recap

To believe in Broadcom's long-term story, I think you need confidence in the strong, ongoing demand for custom AI chips and networking from hyperscalers, and resilient multi-year contracts powering its AI-driven growth. The $10 billion OpenAI partnership may reinforce Broadcom's leading role in this space, but it also intensifies exposure to customer concentration risk, the biggest near-term challenge if any hyperscaler slows orders or pivots to other suppliers.

One recent announcement particularly relevant is Broadcom’s debut of the Thor Ultra 800G AI Ethernet NIC, which directly targets the booming demand for high-performance, open-ecosystem networking in massive AI clusters. This launch amplifies Broadcom’s position as a key enabler of next-generation AI infrastructure, supporting its status as an essential supplier to world-class customers like OpenAI and others, a clear near-term growth catalyst.

But in contrast, shareholders should be aware that heavy reliance on just a handful of hyperscale clients leaves Broadcom especially exposed if spending patterns abruptly change...

Read the full narrative on Broadcom (it's free!)

Broadcom's narrative projects $119.6 billion in revenue and $50.8 billion in earnings by 2028. This requires a 25.9% yearly revenue growth and a $32.0 billion increase in earnings from the current $18.8 billion.

Uncover how Broadcom's forecasts yield a $386.68 fair value, a 7% upside to its current price.

Exploring Other Perspectives

Forty separate fair value estimates from the Simply Wall St Community span from US$241.80 to US$392.38, showing wide-ranging opinions. While this diversity stands out, note that concentrated customer risk continues to shape broader expectations for Broadcom’s future results, explore several perspectives to see how your view compares.

Explore 40 other fair value estimates on Broadcom - why the stock might be worth 33% less than the current price!

Build Your Own Broadcom Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Broadcom research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.
• Our free Broadcom research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Broadcom's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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