Broadcom has struck a deal with OpenAI to develop a massive quantity of chips and computing systems. The partnership has attracted investors' attention, but it is not as clear-cut a win as it might seem at first glance. Broadcom shares rose 9.9% following the announcement, indicating immediate market optimism. The deal involves developing custom chips and computing infrastructure expected to consume 26 gigawatts of electricity—more than New York City consumes during peak daytime hours.
This deal is part of a series of OpenAI agreements with the largest suppliers of artificial intelligence chips, including Nvidia and Advanced Micro Devices. All these agreements involve spending billions of dollars on data centers filled with hundreds of thousands of chips. OpenAI CEO Sam Altman told employees that he plans to build infrastructure consuming as much as 260 gigawatts over the next eight years. That is ten times more than the current plans, but the question remains how OpenAI will pay for all of it.
OpenAI's expected revenue this year will reach around $13 billion (approximately CZK 303 billion), an impressive amount for a startup but nowhere near enough for Sam Altman's ambitious plans. The company has told investors that it does not expect to become profitable until 2029. OpenAI is relying on rapid revenue growth that should make today's hundreds of billions of dollars in spending on artificial intelligence chips look trivial. Sam Altman speaks of exponential growth, where those who hesitate now because of the risks will be left behind later. To finance these aspirations, he is considering new instruments, including taking on substantial debt.
For Broadcom, this represents a major bet on an unstable customer. Bernstein Research analyst Stacy Rasgon estimated that the deal could generate more than $100 billion (approximately CZK 2.33 trillion) in additional revenue for Broadcom over the next three to four years. Broadcom CEO Hock Tan acknowledged in a recent discussion that although developing large artificial intelligence systems will increase profits, it will reduce gross margins, though he did not specify by how much. Producing custom chips and infrastructure for OpenAI is costly, and the systems cannot easily be transferred to other customers if OpenAI fails.
Broadcom faces a bigger gamble than Nvidia or Advanced Micro Devices (AMD), as those companies are still competing for OpenAI's attention, which could lead to price competition and further pressure on margins. For example, Broadcom's main custom-chip customer, Alphabet's Google, has begun working with Taiwanese company MediaTek on its own artificial intelligence chips. This signals a growing competitive threat in this segment.
Broadcom shares have risen 53.88% this year, outperforming the S&P 500 index by 13.01%. Over the past year, the shares have gained 97.11%, and over five years, 939.00%, compared with 89.26% for the S&P 500. The company's market capitalization has reached $1.673 trillion (approximately CZK 39 trillion). Analysts have set an average price target of $371.07 (approximately CZK 8,650), suggesting modest upside potential. The shares trade at a forward P/E ratio of 36.76 and a PEG ratio of 0.55.
Broadcom's role in AI infrastructure
Broadcom and OpenAI announced a multiyear collaboration to jointly develop and deploy 10 gigawatts of OpenAI-designed artificial intelligence accelerators, with deployment running from the second half of 2026 through the end of 2029. These custom chips will be designed by OpenAI and developed in collaboration with Broadcom, allowing insights from the development of advanced models to be incorporated directly into the hardware. The scale of the deployment is enormous—the energy consumption is equivalent to that of more than 8 million American households or five times the output of the Hoover Dam.
The systems will be scaled exclusively using Broadcom's Ethernet and connectivity solutions, strengthening the company's position in the artificial intelligence infrastructure portfolio. This approach gives Broadcom an advantage over rivals such as Marvell Technology and challenges Nvidia's dominance in InfiniBand networking. The partnership builds on existing joint development and supply agreements between the two companies, including a signed term sheet for deploying racks with artificial intelligence accelerators and Broadcom networking solutions.
Sam Altman described the partnership as a key breakthrough in building the infrastructure needed to unlock the potential of artificial intelligence and deliver tangible benefits to people and businesses. For Broadcom, the deal confirms the importance of custom accelerators and Ethernet scaling in artificial intelligence data centers. The company thus joins cloud giants such as Google and Amazon, which are developing their own chips to meet growing demand for artificial intelligence.
Shares continue to rise
Broadcom shares rose more than 9% on Monday, October 13, 2025, following the announcement of a major partnership with OpenAI to develop and deploy custom artificial intelligence accelerators. At 11:48 EDT, the shares were trading at $354.11 (approximately CZK 8,250), an increase of $29.48 (approximately CZK 687) from the previous close of $324.63 (approximately CZK 7,570). The daily trading range was $343.52 to $358.88 (approximately CZK 8,000 to CZK 8,370).
In October, 47 analysts rated the shares a "strong buy." Keybanc recently raised its price target from $400 to $420 (approximately CZK 9,320 to CZK 9,790) while maintaining its "overweight" rating. Broadcom has become one of the biggest winners of the generative artificial intelligence boom, with its share price having nearly sextupled since the end of 2022. In September, Broadcom announced a $10 billion (approximately CZK 233 billion) order for custom artificial intelligence chips, which analysts now link to OpenAI.
This deal with OpenAI reinforces Broadcom's transformation from a traditional networking hardware manufacturer into an AI infrastructure powerhouse. OpenAI serves more than 800 million weekly active users and has strong enterprise adoption, enabling Broadcom to capture significant revenue from the artificial intelligence acceleration market. Investors are showing confidence in the company's ability to execute this vision, as demonstrated by strong premarket gains, when the shares jumped more than 12% before settling at a 9% increase during regular trading.
There are risks as well
Investors appear willing to overlook concerns that Broadcom is a mix of chip and software businesses that often do not overlap, even though the shares trade at approximately 40 times expected earnings for next year. To some extent, this makes sense due to Hock Tan's focus on efficiency and profits, which is driving rising earnings and overall gross margins above 70%.
Nevertheless, it is difficult to explain why Broadcom's forward earnings multiple has exceeded that of Nvidia—the clear market leader with a broader customer base for artificial intelligence chips—for most of this year. Close cooperation with OpenAI could pave the way for years of soaring sales at Broadcom. With OpenAI's future dependent on a grandiose vision without a clear financial model, investors should not view this deal as a certainty.
Additional information from online sources confirms that this partnership is not a direct financial investment but a collaboration on custom artificial intelligence chips, with deployment through the end of 2029. There are concerns about circular growth, in which companies finance one another, potentially concealing risks if the market misjudges demand. Shares of related companies such as Micron and AMD also rose, indicating optimism in the sector but raising questions about excessive enthusiasm.
Sources: investing.com and www.wsj.com
