Broadcom Inc.

NASDAQ Global Select
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Bullish +65

OpenAI Picked Broadcom for Its First Custom AI Chip. The Race for Number Two Just Got Dangerous.

AI-generated analysis

🚀 OpenAI selected Broadcom to design its first custom AI inference chip, Jalapeno, solidifying a major co-development relationship in the semiconductor industry.

💰 CEO Hock Tan projects $115 billion in AI revenue for fiscal 2027 and $230 billion for fiscal 2028 based on current customer roadmaps.

📉 Broadcom stock fell 13.74% over the past month as investors priced uncertainty regarding OpenAI's disclosed partnership with Samsung.

🔧 Q3 AI semiconductor revenue surged to $16.7 billion, representing a 221% year-over-year increase with XPUs accounting for 73% of total AI revenue.

💵 The company generated $13.66 billion in free cash flow during the quarter, demonstrating strong operational efficiency.

📊 Analysts maintain an average price target of $533.41 with 45 Buy or Strong Buy ratings versus only 4 Hold ratings.

🏗️ Broadcom is already designing OpenAI's third-generation XPU, indicating a long-term design relationship extending beyond the initial Jalapeno chip.

🌐 The company retains its competitive moat in accelerator co-design and Ethernet networking, which are essential for tying AI clusters together regardless of fabrication partners.

⚠️ Investors are monitoring whether Samsung's involvement could eventually threaten Broadcom if it secures a design mandate for Jalapeno's successor.

📈 OpenAI is on track to deploy 1.3 gigawatts of capacity in 2027 with line of sight to over five gigawatts in 2028 using Broadcom technology.

Bullish Signals
  • OpenAI selected Broadcom to design its first custom AI inference chip, Jalapeno, establishing a critical co-development relationship that could make the company one of the largest silicon buyers on the planet.
  • CEO Hock Tan projects $115 billion in AI semiconductor revenue for fiscal 2027 and $230 billion for fiscal 2028, driven by deepening relationships with marquee lab customers like OpenAI.
  • Q3 AI semiconductor revenue reached $16.7 billion, a massive 221% year-over-year increase, with custom XPUs now comprising 73% of total AI revenue.
  • The company generated robust free cash flow of $13.66 billion in the quarter, highlighting strong operational performance and capital generation capabilities.
  • Broadcom is already designing OpenAI's third-generation XPU, confirming a long-term strategic partnership that extends well beyond the initial Jalapeno launch.
  • Analysts maintain an average price target of $533.41 with 45 Buy or Strong Buy ratings, reflecting strong confidence in the company's growth trajectory and market position.
Risk Factors
  • Broadcom stock dropped 13.74% over the past month as investors priced uncertainty regarding OpenAI's disclosed partnership with Samsung for next-generation chips.
  • The recent disclosure that OpenAI is working with Samsung on next-gen chips has created investor concern about potential displacement, even though Samsung's specific role remains unspecified.
Full Analysis
OpenAI has selected Broadcom (AVGO) to design its first custom AI inference chip, Jalapeno, establishing a deep co-development relationship that positions the semiconductor giant as a critical partner in the artificial intelligence infrastructure race. While OpenAI recently disclosed a partnership with Samsung for next-generation chips, the article clarifies that Samsung's specific role remains undefined and does not necessarily displace Broadcom from its core design and networking mandates. Broadcom is currently designing OpenAI's third-generation XPU, with CEO Hock Tan projecting significant revenue growth driven by this relationship. The company forecasts $115 billion in AI semiconductor revenue for fiscal 2027 and $230 billion for fiscal 2028, assuming its marquee lab customers remain central to its business strategy. This trajectory suggests OpenAI could become Broadcom's second-largest XPU customer behind Anthropic. Despite recent stock volatility where shares dropped 13.74% over the past month due to investor uncertainty regarding Samsung's involvement, Broadcom maintains a strong financial position with Q3 AI semiconductor revenue reaching $16.7 billion, up 221% year-over-year. The company also reported free cash flow of $13.66 billion and trades at 19 times forward earnings against an analyst consensus price target of $533.