Broadcom stock soared as much as 14% in premarket trading on Friday after the chipmaker unveiled a $10 billion artificial intelligence order from a new customer, sending fresh waves of optimism through markets betting on the generative AI boom.
The shares were also boosted by the software maker’s third-quarter results and fourth-quarter outlook, which both topped Wall Street expectations.
With industry analysts speculating the customer is OpenAI, the blockbuster deal, revealed late Thursday, has positioned Broadcom as a deeper contender in the AI hardware space.
If early gains hold, the surge would add more than $160 billion to Broadcom’s $1.44 trillion market capitalization.
Shares of the company have already risen 32% this year, after more than doubling in 2023.
The optimism came against broader concerns that demand for Nvidia’s GPUs may face pressure from a shift toward custom chips.
Nvidia shares dipped early Friday as investors weighed the growing influence of such bespoke hardware in the AI race.
OpenAI partnership for in-house chip development
The Financial Times reported on Thursday that OpenAI is set to produce its first artificial intelligence chip next year in partnership with Broadcom.
OpenAI plans to put the chip to use internally rather than make it available to external customers, the FT report said, adding that it would be used for the ChatGPT developer’s internal workloads, reducing its reliance on Nvidia’s powerful graphics processors.
Reuters previously reported that OpenAI had been working with Broadcom on in-house chip development, lending further weight to speculation that it is the mystery customer behind the latest order.
While Broadcom did not disclose the client, analysts believe that the company’s existing custom chip customers already include Alphabet’s Google and Meta Platforms.
The addition of a new player of OpenAI’s scale would mark a significant expansion of Broadcom’s foothold in the AI infrastructure market.
Revenue growth outlook improves with the order
Broadcom Chief Executive Hock Tan said the company expects its AI revenue growth in fiscal 2026 to “improve significantly” after securing the multibillion-dollar order.
Bernstein analysts estimate that AI-related sales could exceed $40 billion that year, compared with prior projections of $30 billion.
Still, analysts at BofA Securities noted that the overall AI market continues to expand.
“While we agree Broadcom is taking more share, we believe the AI pie could just be getting bigger,” the firm said in a note.
CEO Hock Tan extends leadership
Adding to the upbeat tone, Tan confirmed he would remain as Broadcom’s chief executive for at least five more years.
At 73, Tan has led the company for nearly two decades and overseen its transformation into a trillion-dollar giant at the center of the AI supply chain.
On Thursday’s earnings call, Tan suggested Broadcom’s custom processors—known as XPUs—would take up a larger share of computing demand at major cloud providers.
“They will have the confidence to keep using a higher and higher percentage of their compute footprint in their own XPUs, for sure. We see that. And that’s why I think we progressively gain share,” he said.
Analysts remain bullish on AVGO
Wall Street analysts largely welcomed the news, with several reiterating their bullish stance on Broadcom.
JP Morgan maintained an “overweight” rating with a $400 price target, encouraged by AVGO’s clear visibility into future AI revenue, supported by strong cloud spending, rising workloads, next-gen accelerator ramps, new customer programs, and robust networking demand.
Bernstein, also “outperform” with a $400 target, said Tan’s renewed contract through 2030 signals confidence in the company’s long-term trajectory.
Morgan Stanley kept an “overweight” rating with a $382 target, noting AVGO will keep its high valuation as its networking and chip businesses continue to grow, and expects other non-AI chips to bounce back next year, after a slowdown caused by too much inventory in networking and storage.
Piper Sandler reiterated its “overweight” view with a $375 target, said the XPUs now have a strong chance of becoming the main compute engines within Broadcom’s hyperscaler customer base.
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